Supply Chain

Sustainability
A Practical Guide for Continuous Improvement

Second Edition
ii Supply Chain Sustainability

The United Nations Global Compact is a call to companies everywhere to voluntarily align their operations
with ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption,
and to take action in support of United Nations goals and issues. The UN Global Compact is a leadership
platform for the development, implementation and disclosure of responsible corporate practices and
policies. Launched in 2000, it is the largest corporate sustainability initiative in the world, with over 8,000
companies and 4,000 non-business signatories based in 160 countries.
www.unglobalcompact.org

BSR works with its global network of more than 250 member companies to build a just and sustainable
world. From its offices in Asia, Europe and North and South America, BSR develops sustainable business
strategies and solutions through consulting, research and cross-sector collaboration. Visit www.bsr.org for
more information about BSR’s more than 20 years of leadership in sustainability.

Disclaimer
The inclusion of company examples in this publication is intended strictly for learning purposes and does not
constitute an endorsement of the individual companies.

Copyright
The material in this publication is copyrighted.
The UN Global Compact encourages the dissemination of the content for educational purposes.

Content from this publication may be used freely without prior permission, provided that clear attribution is
given to UN Global Compact and BSR and that content is not used for commercial purposes.

© 2015, UN Global Compact Office and BSR

UN Global Compact revision project team: Anita Househam and Elena Bombis.

The revision of this guide was also made possible thanks to the input of the UN Global Compact Advisory
Group on Supply Chain Sustainability with special contribution from its ad hoc Task Force and the UN Global
Compact staff.

The original guide was written by Cody Sisco, Blythe Chorn and Peder Michael Pruzan-Jorgensen, with
significant editorial input from Cecilie Hultmann, the UN Global Compact Office staff, BSR staff and the UN
Global Compact Advisory Group members in 2010, also listed on Page 4.
Innovation Norway, Nokia and Ford offered their generous support for the development of this guidance in
2010.

Designer of the revised guide: Tannaz Fassihi

 1

Contents
Foreword  2
Georg Kell, Executive Director, UN Global Compact Office
Aron Cramer, President and CEO, BSR

Executive Summary
Practical Steps to Supply Chain Sustainability  5
1. Introduction 7
2. Getting Started on Supply Chain Sustainability 15
Developing the Business Case
Understanding the Landscape
Establishing a Vision

3. Establishing Sustainability Expectations for the Supply Chain  23

Overview of Engaging Supply Chain Management Professionals
Overview of Supplier Code of Conduct
Adopting or Writing a Supplier Code of Conduct
Using the Supplier Code of Conduct

4. Determining the Scope  29

Supply Chain Mapping
Supply Chain Prioritization

5. Engaging with Suppliers  37

Selecting Communications Channels
Monitoring and Evaluation
Remediation and Capability Building
Engaging with Sub-Tier Suppliers

6. Determining Roles & Responsibilities  51

Internal Alignment
Governance and Oversight: Executive Leadership and the Board of Directors
Cross-functional Coordination among Business Managers
Implementation by Supply Chain Management Professionals

7. Industry Collaboration &

Multi-Stakeholder Partnerships 59
The Context for Industry Collaboration
Opportunities and Risks of Industry Collaboration
Multi-Stakeholder Partnerships

8. Establishing Goals &

Tracking and Communicating Performance 67
The Process of Goal Setting
Goals for Impact
Goals for Supplier Performance
Goals for Internal Performance
Measurement Processes and Practices
Communicating Progress and Reporting

Acknowledgements72
2 Supply Chain Sustainability

Foreword

Since the original launch of Supply Chain Sustainability: A Practical Guide to Continu-
ous Improvement in 2010, companies have continued to extend their commitment
to responsible business practices to their value chains, from subsidiary to suppli-
ers. The business case for supply chain sustainability has evolved significantly.
An increasing amount of companies have realized the crucial importance of
incorporating sustainability requirements into their supply chain programme in
order to secure their own brand value, manage legal, regulatory and reputational
risks as well as foster product innovation and explore new markets. Moreover,
businesses consider the many rewards supply chain sustainability can deliver in
terms of creating more inclusive markets and the contribution they can make to
advance sustainable development in the spirit of the United Nations’ missions.

As the UN is expected to adopt the Sustainable Development Goals, business

has an enormous opportunity to step up and take a broader view of their role in
society, explore how they can do more to support their suppliers on corporate
sustainability and use their value chains as a source of increasing their positive
impact on people and the environment.

A large number of initiatives, standards and resources have been developed in

the recent years to complement and/or build on the mission of the UN Global
Compact. The Guiding Principles on Business and Human Rights, endorsed by
the United Nations Human Rights Council in 2011, have provided further detail
on the corporate responsibility to respect human rights, which is part of the UN
Global Compact Principle 1 and how businesses can know and show that they are
meeting it, both within their company and in the supply chain. In the mean-
time, the UN Global Compact’s Advisory Group on Supply Chain Sustainability,
which was formed on the occasion of the original development of this guide in
2010, continues to maintain a leading role within the the UN Global Compact to
support its overall strategy on this issue and contribute to the development of
specific guidance on various issues.

This second edition of Supply Chain Sustainability: A Practical Guide to Continuous

Improvement, developed in collaboration with BSR and the UN Global Compact’s
Advisory Group on Supply Chain Sustainability, is aimed at reflecting the new
and emerging trends in this area since its original launch in 2010 as well as
ensuring the inclusion of and alignment with relevant standards and initiatives.
Featuring numerous updated and new examples of good corporate practice, the
guide remains a valuable tool to provide companies with practical guidance on
how to develop a sustainable supply chain programme based on the values and
principles of the UN Global Compact and assists businesses in setting priorities
for action that will lead to continuous performance improvement.

We hope this publication will continue to further the work of companies in col-
laborating with their suppliers to deliver tangible and lasting benefits to busi-
ness, the environment and societies everywhere.

Georg Kell
Executive Director
UN Global Compact
 3

Supply chains continue to be one of the most important levers for business to
create positive impact in the world, with an estimated 80% of global trade pass-
ing through supply chains. By working together, buyers and suppliers in global
supply chains and networks can advance human rights including labor rights,
climate resilience, environmental protection, inclusive economic growth and
ethical business practices.

Since the original guide Supply Chain Sustainability: A Practical Guide for Continuous
Improvement was launched in 2010, supply chain sustainability has become main-
stream for businesses and there have been significant promising developments.
The UN Guiding Principles on Business and Human Rights have clarified busi-
ness’ responsibility for human rights in their own operations and supply chains.
We have seen advances in the way companies work with their suppliers, moving
from focusing heavily on auditing towards using new technologies and collabora-
tive efforts to engage suppliers and workers in a more equitable approach to find
joint solutions. We have seen increasing levels of transparency from companies,
publishing lists of factories, openly reporting on the social and environmental
performance of their supply chains and promoting transparency to their suppli-
ers. We have also seen unprecedented amounts of collaboration among business-
es and stakeholders in efforts to ensure that commodities, such as wood, cotton
and fish, are traceable and sustainable.

BSR continues to work with our global network of 275 member companies and
their supply chain partners around the world to develop, support and implement
supply chain sustainability towards a just and sustainable world. We are proud
to be a part of the launch of this revised guide on the fifteenth anniversary of
the UN Global Compact Ten Principles.

The original version of this guide has helped businesses of all sizes around the
world to understand what supply chain sustainability means and how to imple-
ment practices in their own business, industry and geographic contexts. The
revisions made in this updated version reflect the advancements in the field;
reinforce the core practices that are accepted minimum standards; and underline
the needed areas for improvement.

We hope that this guide continues to make a significant contribution to advance

fair and sustainable working conditions and environmental protection and per-
formance for entire industries, geographies and market segments by:

• Extending sustainability to small and medium-sized enterprises

• Creating better connections to firms in developing countries on key social
and environmental issues
• Supporting good governance and business ethics as a key pillar of
well-functioning markets.

BSR is very proud to have partnered with the UN Global Compact and we look
forward to continuing to support it and its business participants around the world
to make the vision of the UN Global Compact an even more powerful reality.

Aron Cramer
President and CEO
BSR
4 Supply Chain Sustainability

United Nations Global Compact Advisory Group

on Supply Chain Sustainability

In 2010, the UN Global Compact established an Advisory Group of UN Global Compact participants and stakehold-
ers to guide its work on supply chain sustainability. The role of the Advisory Group is to provide input to the overall
strategy and work done by the UN Global Compact on the issue of supply chain sustainability and to ensure that the
guidance material developed is robust and addresses the needs of business. In addition to this guide, the Advisory
Group has set up task forces to develop various tools and resources aimed at helping businesses to integrate the UN
Global Compact Ten Principles into supply chain relationships.

The advisory group is chaired by Mr. Mads Øvlisen, Special Advisor to the Global Compact on supply chain sustain-
ability and a former member of the UN Global Compact Board. We would like to thank Mr. Øvlisen and all of the
members of the Advisory Group for their ongoing support to the supply chain sustainability workstream and the re-
vision of this resource (members with an asterisk * have been part of an internal Task Force devoted to the in-depth
revision of this version of the guide):

■■ *Ms. Renata Yourievna Frolova, Head of Responsible Procurement, A.P. Moller Maersk (Denmark)
■■ Ms. Samantha Prates, Head of External Logistic and MRO Purchasing, ArcelorMittal (Luxembourg)
■■ Mr. Jonathan Drimmer, Vice-President and Deputy General Counsel, Barrick Gold (Canada)
■■ Ms. Aysun Sayin, Sustainability Director, Boyner Holding (Turkey)
■■ *Ms. Tara Norton, Director – Advisory Services, BSR (Global)
■■ *Mr. Hugh Jones, Managing Director Advisory, Carbon Trust (Global)
■■ Mr. Juan Antonio Espinosa, Procurement Director, Planning & Control, CEMEX (Mexico)
■■ Mr. Unni Nair, Supply Chain Sustainability Programme Manager, Cisco Systems (USA)
■■ Ms. Nancy Gillis, Senior Manager – Sustainable Supply Chain, Procurement and Supplier
Management, EY (Global)
■■ Ms. Maria Jose Trogolo, Senior Strategic Partnership, Fairtrade International (Global)
■■ Ms. Mary Wroten, Global Purchasing Sr. Manager – Supply Chain Sustainability, Ford Motor Company (USA)
■■ Mr. Indalecio Perez Diaz del Rio, Compliance Manager, Inditex (Spain)
■■ Mr. Ankush Patel, Vice-President and Head of Strategic Business Practice for Sustainability, Infosys Technologies (India)
■■ Ms. Beroz Gazdar, Vice President - Infrastructure Development Sector, Mahindra & Mahindra Limited (India)
■■ Mr. Andy York, Ethical Trading Manager, N Brown Group (UK)
■■ Ms. Hilary Parsons, Public Affairs Manager, Supply Chain, Nestle S.A. (Switzerland)
■■ Mr. Justin Hughes, Managing Consultant, PA Consulting Group (Global)
■■ Dr. Marcia Balisciano, Director of Corporate Responsibility, RELX Group (UK)
■■ Mr. Gustavo Pérez Berlanga, Vice President – CSR, Restaurantes Toks (Mexico)
■■ Ms. Sanda Ojiambo, Head of Corporate Sustainability, Safaricom (Kenya)
■■ *Ms. Jo Webb, Head of Stakeholder Relations, Sedex (UK)
■■ Ms. Jane Hwang, Chief Operating Officer, Social Accountability International (SAI) (Global)
■■ Ms. Rachelle Jackson, Director Sustainability & Innovation, Arche Advisors (USA)
■■ Mr. Ola Ree, Head of Supply Chain Sustainability, Telenor Group (Norway)
■■ *Ms. Monica Bowen-Schrire, Senior Advisor, Corporate Sustainability & Environment, Vattenfall (Sweden)
■■ Dr. Gerhard Prätorius, Head of Coordination CSR and Sustainability, Volkswagen AG (Germany)

Additionally, we would like to thank the following organizations, who were also part of the Advisory Group in 2010
and supported the development of the original guide:

 et Norske Veritas (Norway); DiGi Telecommunications Sdn Bhd (Malaysia); Esquel Group of Companies (China); Global
D
Compact Network Spain (Spain); Global Social Compliance Programme (GSCP) (Global); Grupo Pão de Açucar – Companhia
Brasileira de Distribução (Brazil); Hewlett-Packard (USA); Hitachi Ltd. (Japan); Hyundai Motor Company (Republic of Korea);
IKEA (Sweden); Innovation Norway (Norway); Integrated Contract and Supply Solutions – ISCS (United Arab Emirates);
Philips Electronics N.V. (Netherlands); Nokia Corporation (Finland); STR Responsible Sourcing (USA); Takeda Pharmaceuti-
cal Company Limited (Japan); Tata Council for Community Initiatives (TCCI) (India); UBS AG (Switzerland); Unilever (UK).
 5

Executive Summary: Practical

Steps to Supply Chain Sustainability
Supply chain sustainability is increasingly recog-
nized as a key component of corporate sustain-
ability. In addition to being the right thing to do,
managing the social, environmental and eco-
nomic impacts of supply chains and combating
corruption makes good business sense. However,
supply chains consist of continuously evolv-
ing markets and relationships. To navigate this
complex terrain, we offer a few baseline defini-
tions and practical steps that companies can take
toward progress, using the United Nations Global
Compact principles as the basis to work toward
supply chain sustainability.
What is Supply Chain Sustainability?
Supply chain sustainability is the management
of environmental, social and economic impacts
and the encouragement of good governance
practices, throughout the lifecycles of goods
and services. The objective of supply chain
sustainability is to create, protect and grow
long-term environmental, social and economic
value for all stakeholders involved in bringing
products and services to market. By integrating
the UN Global Compact Ten Principles into sup-
ply chain relationships, companies can advance
corporate sustainability and promote broader
sustainable development objectives.
This guide is intended
Why is Supply Chain for companies with
Sustainability important? significant sourcing
Supply chains are the engines for today’s global activities that are
economy, serving to deliver goods and services interested in learning
around the world, connecting businesses and the how to incorporate
individuals who work for them across geographic, sustainability into
industry, cultural and regulatory boundaries. their supply chain
Supply chain sustainability provides that management strate-
companies will continue to meet their needs gies and practices.
in the future, in economic, social, ethical and
environmental terms. It ensures compliance with
laws and regulations as well as adherence to and
support of international principles for sustain-
able business conduct. In addition, companies
are increasingly taking actions that result in bet-
ter social, economic and environmental impacts
because society expects this and because there
are business benefits in doing so.
By managing and seeking to improve envi-
ronmental, social and economic performance
and good governance throughout supply chains,
companies act in their own interest, the interests
of their stakeholders and the interests of society
at large. By implementing supply chain sustain-
ability programmes, companies engage with
both direct and sub-tier suppliers, mainstream-
ing values and actions down to raw material
producers and maximizing the overall social,
environmental and ethical impact.

What steps can my company take?

This guide outlines practical steps companies can take to achieve supply chain sustainability and presents examples to inspire action.
The recommended steps summarized below are based on the UN Global Compact Management Model, which is a flexible framework
for continuous improvement regarding the mainstreaming of the UN Global Compact into strategies and operations.
The steps below and throughout the guide are not linear. Rather, they represent complementary actions that companies can
take in order to achieve more sustainable supply chains. In addition, there are three principles for successful supply chain sustain-
ability management – governance, transparency and engagement – that are essential to every step of the model.

COMMIT DEFINE and IMPLEMENT

COMMIT ■■ Develop the business case by understanding the ■ Communicate expectations and engage with
ASSESS
landscape and business drivers. (Chapter 2) suppliers to improve performance. (Chapter 5)
■■ Establish a vision and objectives for supply chain ■ Ensure alignment and follow up internally.
sustainability. (Chapter 2) (Chapter 6)
COMMUNICATE
■■ Establish sustainability expectations for the ■ Enter into collaboration and partnerships.
supply chain. (Chapter 3) (Chapter 7)
DEFINE

ASSESS MEASURE and COMMUNICATE

MEASURE
■ Determine the scope of efforts focusing primar- ■ Track performance against goals and be
IMPLEMENT ily on areas where there is the greatest actual transparent and report on progress. (Chapter 8)
and potential risk of adverse impact on people,
environment and governance. (Chapter 4)
6 Supply Chain Sustainability
 7

1. Introduction

Purpose and Target Audience sustainability is defined as a company’s This guide focuses on
This guide is intended to help companies of delivery of long term value creation in upstream business
all sizes, both those who are new to and those financial, social, environmental and ethical partners, i.e. relation-
experienced in supply chain sustainability, to terms. This definition encompasses the role of ships with suppli-
apply the UN Global Compact Ten Principles business in addressing environmental, social ers, rather than with
throughout their supply chains and to integrate (human rights and labour) and corporate distributors, consumer
sustainability into their business strategies. It is governance issues, as covered by the UN Global use of products or end
designed for individuals with oversight of and Compact’s Ten Principles. of life issues. A focus
input on corporate sustainability, procurement “Supply chain sustainability” is the on downstream im-
and supply chain priorities and practices. management of environmental, social and pacts of supply chains
Case studies and examples throughout the economic impacts, and the encouragement may be addressed in
guide provide an overview of how companies of good governance practices throughout the future by the UN
have implemented supply chain sustainability the lifecycles of goods and services. Global Compact Office.
programmes. Advanced practices are highlight- The objective of supply chain sustainabil-
ed in gray boxes entitled “On the Horizon”. ity is to create, protect and grow long-term In addition, this guide
environmental, social and economic value for focuses on the ques-
Supply Chain Sustainability Defined all stakeholders involved in bringing products tion of whom compa-
In today’s globalized economy, outsourcing and services to market. Through supply chain nies buy from and how
business operations doesn’t mean outsourcing sustainability, companies protect the long-term they source products,
responsibilities or risks—or that a company’s viability of their business and secure a social rather than what they
responsibility ends once a product is sold. license to operate. buy. In April 2014, The
Leading companies understand that they have UN Global Compact
a role to play throughout the lifecycle of their For the purposes of this document, supply and BSR developed
products and services. Supply chain sustain- chain management professionals are defined A Guide to Traceability:
ability management is key to maintaining the as that group of individuals within a company A Practical Approach
integrity of a brand, ensuring business continu- that have the most direct contact with suppliers to Advance Sustain-
ity and managing operational costs. It is also an and are in charge of the acquisition of direct ability in Global Supply
important aspect of the implementation of the and indirect goods and services from external Chains. Traceability
UN Global Compact principles. sources. We use this expression in the broad- is a useful tool that
est sense, synonymous with other commonly provides information
Working Definitions used terms, such as “procurement,” “buying,” on the components of
For the purposes of this guide, corporate “sourcing” and “purchasing.” products, parts and
materials and helps
verify certain sustain-
Environmental, Social and Economic Impacts ability claims associ-
Exist Throughout Every Stage of Supply Chains.1 ated with products
and commodities.
rtation
Transpo More resources on
traceability and other
Material input At every stage in the related topics may
Recycling lifecycle of specific
be the future focus of
products there are so-
cial and environmental
attention from the UN
Extraction Global Compact Office.
impacts, or externali-
ties, on the environ- https://www.
END OF LIFE manufacturing
ment and on people. unglobalcompact.org/
In addition, gover- library/791
Environment nance, or the account-
Disposal
ability of organizations
to their stakeholders
for their conduct, is
important at every
stage throughout the
Use distribution supply chain.

1
From BSR.
8 Supply Chain Sustainability

About Supply Chain Sustainability & the United Nations Global Compact
The UN Global Compact encourages participants to engage with suppliers about respect for
the Ten Principles and to advance sustainable development objectives as part of their commit-
ment to the UN Global Compact, and, thereby, to spread good corporate sustainability practices
throughout the global business community. As the table below outlines, the Ten Principles are
intricately tied to sustainability in supply chains.

The Ten Principles of the Global Compact and

Supply Chain Sustainability

The Ten Principles Relationship to Supply Chain Sustainability

Human Rights Companies have a responsibility to respect human rights. The baseline
responsibility is not to infringe on the rights of others and address any
Principle 1: Businesses should adverse impacts that occur. The Guiding Principles on Business and
support and respect the Human Rights (the Guiding Principles), endorsed by the UN Human
Rights Council in June 2011, provide a globally authoritative standard
protection of internationally for how companies can meet this responsibility. The Guiding Principles
proclaimed human rights; and state that companies should have in place policies and processes
appropriate to their size and circumstances, including a process of
Principle 2: make sure continuous human rights due diligence, to “know and show” that they
that they are not complicit respect human rights. The Guiding Principles provide conceptual
in human rights abuses. clarity and content to the corporate responsibility to respect human
rights described in Principle 1 and 2 of the UN Global Compact. In
other words, the corporate responsibility to respect human rights in
Labour Principle 1 of the UN Global Compact is the same one described in the
Guiding Principles.1 It should also be noted that the Guiding Principles
Principle 3: Businesses should include labour rights in the sphere of human rights for workers.
uphold the freedom of as- Therefore, the responsibility to respect human rights also applies to
Principles 1 to 6 of the UN Global Compact.
sociation and the effective
recognition of the right to Additionally, business can go beyond addressing harm to human rights
collective bargaining; by taking steps to support and promote the realization of human rights
through core business activities, strategic social investment, philan-
Principle 4: the elimination of thropy, public policy engagement, advocacy partnerships as well as
collective actions, and there are good business reasons to do so. They
all forms of forced and com-
should also establish operational-level grievance mechanisms as a key
pulsory labour; support tool to provide access to remedy for the rights-holders.

Principle 5: the effective aboli- Labour conditions in offices, in factories, on farms and at natural
tion of child labour; and resource extraction sites such as mines often fall significantly below
international standards and national regulatory requirements and can
Principle 6: the elimination of lead to serious human rights abuses. In these contexts, businesses
discrimination in respect of should respect international labour standards within their supply
chains, including by ensuring that suppliers respect the rights of
employment and occupation.
freedom of association and the right to collective bargaining, abolishing
forced and child labour and eliminating discrimination.

In addition, workers in many countries may be vulnerable to other

human rights abuses, including unsafe or hazardous work, excessive
work hours, unpaid wages, degrading treatment by employers and
inhibited movement. In order to avoid complicity in abuses, busi-
nesses should seek to ensure that they do not cause or contribute to
the infringement on the rights of workers and that such infringements
are not directly linked to their operations, products or services through
their business relationships, including with respect to the right to
freedom of movement, freedom from inhumane treatment, the right to
equal pay for equal work and the right to rest and leisure. The rights of
all peoples to work in safe and healthy working conditions and to have
access to social protection measures are critically important as well.

1
For more information about the relationship between the UN Global Compact’s Human Rights Principles and the Guiding Principles, please read The UN Guiding
Principles on Business and Human Rights: Relationship to UN Global Compact Commitments (UN Global Compact, OHCHR, updated June 2014), available at
https://www.unglobalcompact.org/docs/issues_doc/human_rights/Resources/GPs_GC%20note.pdf.
 9

Environment Environmental impacts from supply chains are often severe, par-
ticularly where environmental regulations are lax, price pressures
Principle 7: Businesses are significant and natural resources are (or are perceived to be)
should support a precaution- abundant. These impacts can include toxic waste, water pollution, loss
of biodiversity, deforestation, long term damage to ecosystems, water
ary approach to environmen- scarcity, hazardous air emissions as well as high greenhouse gas
tal challenges; emissions and energy use. Companies should engage with suppliers
to address environmental impacts, by applying the precautionary ap-
Principle 8: undertake initia- proach, promoting greater environmental responsibility and the usage
tives to promote greater of clean technologies.
environmental responsibility;
and
Principle 9: encourage the
development and diffusion
of environmentally friendly
technologies.

Anti-Corruption The significant corruption risks in the supply chain include procure-
ment fraud and third parties who engage in corrupt practices involving
Principle 10: Businesses governments. The direct costs of this corruption are considerable,
should work against corrup- including product quality, but often are dwarfed by indirect costs related
to management time and resources dealing with issues such as legal
tion in all its forms, including
liability and damage to a company’s reputation. Companies that engage
extortion and bribery. their supply chains through meaningful anti-corruption programmes can
improve product quality, reduce fraud and related costs, enhance their
reputations for honest business, improve the environment for business
and create a more sustainable platform for future growth.

An approach to the post-2015 development agenda

in global supply chains
In 2000, the United Nations established the Millennium Development Goals (MDGs), a
set of eight globally agreed goals that range from eradicating poverty to promoting gen-
der equality. Following the expiration of the MDGs in 2015, a series of consultations in-
volving governments, private sectors, civil society and other stakeholders have led to the
identification of priority areas of focus for the Post-2015 development agenda. The UN
Global Compact has played a critical role of conveying the voice of responsible business
to this global process and illustrating how corporate sustainability can effectively con-
tribute to sustainable development.2 Managing the social, environmental and economic
impacts of supply chains is a key component for sustainable development and a means
for businesses to scale up their sustainability practices. The implementation of sustain-
able supply chain policies and practices offers a significant opportunity for a company to
contribute to the advancement of sustainable development, including inclusive growth,
social equity and progress, and environmental protection.

2
For more information about the role of the UN Global Compact in the Post-2015 consultations, please read the note The UN Post-2015 Process and How the Global Com-
pact Fits In (UN Global Compact, 2014), available at https://www.unglobalcompact.org/docs/issues_doc/development/UN_Post2015_Process_Global_Compact.pdf.
10 Supply Chain Sustainability

SPECIAL INITIATIVES OF THE UN GLOBAL COMPACT

AND SUPPLY CHAIN SUSTAINABILITY
The UN Global Compact has developed several initiatives, either alone or in partnership with other organizations, to build on
the Ten Principles in relation to specific issues or to the rights of an underrepresented category of stakeholders. The issues
and actions set by the special initiatives are relevant both to the company’s activities and its supply chain.

The Women’s Empowerment Principles (WEPs).
Co-developed by the UN Global Compact and UN
Women, the WEPs are a set of Principles for business
offering guidance on how to empower women in the
workplace, marketplace and community. Principle 5
of the WEPs asks companies to expand relationships
with women-owned/managed businesses, including
small businesses and women entrepreneurs.
www.weprinciples.org/
The Children’s Rights and Business Principles (CRBPs). The CRBPs
are the result of the collaboration between UNICEF, the UN Global
Compact and Save the Children. They are the first comprehensive set of
principles to guide companies on the full range of actions they can take
to respect and support children’s rights, both within their business and
throughout their supply chains. Principle 2 of the CRBPs requires busi-
nesses not to employ or use children in any type of child labour and to en-
sure that age-verification mechanisms are also used in the supply chain.
www.childrenandbusiness.org/

Child Labour Platform. An initiative coordinated by
the UN Global Compact and the International Labour
Organization, the Child Labour Platform is a multi-
sector, multistakeholder forum for sharing experi-
ences and lessons learned in eliminating child labour,
particularly in the supply chain.
http://www.ilo.org/ipec/Action/CSR/clp/lang--en
/index.htm
Caring for Climate (C4C). Caring for Climate is the UN Global Compact,
UN Environment Programme and the secretariat of the UN Framework
Convention on Climate Change’s initiative to advance the role of busi-
ness in addressing climate change. It provides a framework for business
leaders to implement practical climate change solutions and help shape
public policy. C4C signatories commit to continuously improve energy ef-
ficiency and usage, reduce the carbon footprint of products, services and
processes, and build capacity to adapt to climate change in their opera-
tions and the supply chain.
www.caringforclimate.org

CEO Water Mandate (CWM). Launched by the

Food and Agriculture Business Principles (FAB). The FAB Principles
UN Secretary-General, the CEO Water Mandate is
are the first set of global voluntary business principles for the food and
designed to assist companies in the development,
agriculture sector.
implementation and disclosure of water sustain-
They provide agreed global language on what constitutes sustainability in
ability policies and practices. It seeks to make a
food and agriculture on critical issues ranging from food security, health
positive impact with respect to the emerging global
and nutrition to human rights, good governance and environmental stew-
water crisis by mobilizing a critical mass of business
ardship, as well as ensuring economic viability across the entire value
leaders to advance water sustainability solutions
chain.
throughout business operations and the supply chain
https://www.unglobalcompact.org/Issues/Environment/food_agriculture_
– in partnership with the UN, civil society organiza-
business_principles.html
tions, governments and other stakeholders.
www.ceowatermandate.org

Business for Peace (B4P). B4P supports compa-

nies in implementing responsible business practices
Business for the Rule of Law (B4ROL). The B4ROL initiative seeks to
that are aligned with the UN Global Compact prin-
engage the business community to support the rule of law, as a comple-
ciples throughout their business and supply chains in
ment to not substitute for, government action. It includes, among other
conflict-affected/high-risk areas and catalyzes col-
things, a Framework which aims to provide guidance and support dialogue
laborative action to advance peace in the workplace,
on how companies from around the world are able to take voluntary
marketplace, local communities and along their
action to support the rule of law in their business operations and relation-
supply chain. This bottom-up, grassroots approach
ships, while reinforcing business respect for the UN Global Compact’s Ten
creates and maintains dialogues and working groups
Principles and support for broader UN goals throughout its own business
where companies and other stakeholders can share
operations and supply chain relationships.
experiences and identify the factors critical to ad-
https://www.unglobalcompact.org/Issues/human_rights/business_for_the_
vancing sustainable peace along their supply chains
rule_of_law.html
within the country.
https://www.unglobalcompact.org/Issues/conflict_
prevention/index.html
11
12 Supply Chain Sustainability

UN GLOBAL COMPACT SUSTAINABLE

SUPPLY CHAIN RESOURCES
Supply Chain Sustainability: An Online Assessment and Learning Tool
An interactive tool for customers to measure progress in implementing a holistic sustain-
able supply chain approach, assess gaps and share challenges and successes. Produced in
collaboration with BSR.
http://supply-chain-self-assessment.unglobalcompact.org/

Sustainable Supply Chains: Resources & Practices

This portal provides information on initiatives, resources and tools to assist companies
in developing more sustainable supply chains, as well as case examples of company
practices.
www.supply-chain.unglobalcompact.org

Human Rights and Labour Working Group Good Practice Notes on Supply Chains
A series of Good Practice Notes on how companies can partner with suppliers, govern-
ments and civil society to promote human rights in supply chains.
http://supply-chain.unglobalcompact.org/

Embedding Human Rights in Business Practice – Case Studies Series

A collection of case studies about efforts by companies to integrate human rights prin-
ciples into their practices and supply chains. Case Studies on ANZ, Ford, Telenor Group and
Total include a focus on supply chain management.

Environmental Stewardship Resource

A strategic policy framework for environmental management and sustainability, including
strategies and guidance for supply chain implementation.

Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers
Practical guidance and tools for both customers and suppliers to engage in the fight
against corruption. A product of the UN Global Compact 10th Principle Working Group.

Stand Together Against Corruption

Developed by the Anti-Corruption Task Force of the Advisory Group on Supply Chain Sus-
tainability, this resource provides short and practical guidance to companies on managing
anti-corruption in the supply chain.

A Guide to Traceability: A Practical Approach to Advance Sustainability in

Global Supply Chains
The guide presents practical steps for implementing traceability programmes within com-
panies, features case studies, and maps relevant stakeholders, resources and sustainability
issues related to key commodities. A product of the Traceability Task Force of the Advisory
Group on Supply Chain Sustainability.

Webinar Series on Supply Chain Sustainability

A series of online events focused on the most pressing issues around supply chain sustain-
ability. The presentation slides and video recordings from past webinars are available on
the UN Global Compact website following the event.

All resources can be accessed at: www.unglobalcompact.org/what-is-gc/our-work/

supply-chain

How to Use This Guide
This guide describes a holistic approach to
supply chain sustainability that can help com-
panies identify key issues and considerations
for a supply chain sustainability approach
that is aligned with the ten principles of the
UN Global Compact.
We begin in Chapter 2 by exploring the ratio-
nales and business drivers for supply chain
sustainability. We also discuss the importance
of understanding the internal and external
landscape and of establishing a company-spe-
cific vision for supply chain sustainability.
In Chapter 3, we provide advice on designing
a policy for sustainable procurement and a
related supplier code of conduct that builds
from the UN Global Compact Ten Principles
and other recognized international standards,
as well as how to put these policies to use.
Chapter 4 describes the key factors in deter-
mining the scope of a supply chain sustain-
ability programme, such as mapping of the
supply chain and prioritization.
Chapter 5 outlines steps for engaging with
suppliers on supply chain sustainability. It
includes approaches for communicating with
suppliers, monitoring performance, build-
ing supplier capacity as well as leadership
activities in building suppliers’ sustainability
management systems.
Chapters 6 provides practical guidance on
internal responsibilities and performance
management for supply chain sustainability.
It outlines concepts of internal alignment
as well as the suggested roles for executive
management and supply chain management
professionals.
Chapter 7 describes how collaboration and
multi-stakeholder partnerships, includ-
ing with governments, can help extend the
impact of supply chain sustainability pro-
grammes and some of the opportunities and
risks associated with this.
13
Chapter 8 provides recommendations on
goal setting and metrics to track internal and
supplier performance in meeting companies’
supply chain sustainability expectations.
They also explore the importance of public
reporting.
We welcome comments on the content of
this guide and other deliverables as we seek
to constantly improve the availability and
alignment of supply chain sustainability
tools for companies.
UN Global Compact
and BSR Partnership
on Supply Chain
Sustainability
Since 2010, UN Global Compact and BSR
have collaborated on several projects
to develop strategic guidance materials
for business on the implementation of
the Ten Principles in supply chain pro-
grammes and operations. This guide is a
result of this coordinated effort.
Additionally, the UN Global Compact
and BSR have developed the Quick
Self-Assessment and Learning Tool for
companies to check anonymously their
current level of supply chain sustain-
ability implementation against suggested
global guidance and to learn how to
make progress over time in implement-
ing a holistic approach.
This interactive tool was released in 2011
and will be updated following the launch
of the revised guide.
14 Supply Chain Sustainability

“Business is often taking

the initiative to move
things forward. Focusing
only on the business
case underplays the
value that business is
and should be providing
in society and with
regards to development.”
– Mads Øvlisen, Chair of the UN Global
Compact Advisory Group on Supply Chain Sustainability.
 15

2. Getting Started on Supply

Chain Sustainability
The first steps in developing a supply chain
sustainability programme are to evaluate the busi-
ness case for action and understand the internal
and external landscape. These efforts will help
identify the highest priority supply chain issues
for the company, evaluate risks and opportunities
and build the internal support to move forward.
In addition, companies are motivated to act by
expectations that they identify and address the
impacts on people and the environment linked
to their supply chain, whether or not these pose
risks to the companies themselves. As an exam-
ple, the corporate responsibility to respect human
rights requires companies to avoid causing or
contributing to adverse human rights impacts and
to seek to prevent or mitigate any adverse human
rights impact that is directly linked to their opera-
tions, products or services through their business
relationships. This responsibility applies at any
level of the value chain. Best practices require
companies to address risks of adverse impacts
in the supply chain from the perspective of the
rights-holders, rather than limiting the scope of
their policies and procedures to only cover those
risks that are paramount to the business.
Developing the Business Case
There are many compelling reasons for taking ac-
tion to improve social and environmental impacts
throughout the supply chain. Many companies
are driven by their corporate values and culture to
address sustainability issues. For these companies,
the fact that supply chain sustainability is the
right thing to do and is a driver of social develop-
ment and environmental protection helps create
internal buy-in and commitment.
Having a strong business case helps a company
to further build internal buy-in for their sustain-
able supply chain objectives. Many companies
also identify specific business drivers for sup-
ply chain sustainability. The business case for a
particular company depends on a variety of issues
including industry sector, supply chain footprint,
stakeholder expectations, business strategy and
organizational culture. Supply chain sustainabili-
ty management practices that respond to multiple
drivers can maximize the value to business.
The most common business drivers for supply
chain sustainability are depicted in the figure
below.

building the business case for supply

chain sustainability 3

Business Drivers
for Supply Chain Sustainability

Sustainability-related risks Sustainability- Sustainability-

driven advantaged
■■ Maintain social license to operate productivity growth
■■ Meet existing and emerging legal
and reporting requirements ■■ Reduce cost of ■■ Meet evolving
■■ Minimize business disruption material inputs, energy, customer and business
from environmental, social and transportation partner requirements
economic impacts ■■ Increase labour ■■ Innovate for chang-
■■ Protect company’s reputation productivity ing market
and brand value; meet investors’ and ■■ Create efficiency
stakeholders’ expectations across supply chains

Governance, Management, Transparency

3
See Value Driver Model (2013, UN Global Compact LEAD, PRI), available at https://www.unglobalcompact.org/docs/issues_doc/Financial_markets/
Value_Driver_Model/VDM_Report.pdf.
16 Supply Chain Sustainability
Meeting Business
Objectives through
Supply Chain
Sustainability
Example of Sustain-
ability-Related Risk
Management: Partner-
ing with suppliers to en-
sure minimum standards
in management prac-
tices, such as hiring age,
contracts with workers,
health and safety condi-
tions, etc.
Example of Sustain-
ability-Driven
Productivity Initia-
tives: Reducing costs
without negatively im-
pacting operations, such
as shipping products
via ocean freight rather
than via air cargo when
practicable.
Example of Growth
from Sustainability-
Advantaged Products:
Sourcing raw materials
with social and environ-
mental impacts explic-
itly considered, such
as biologically-based
plastics that emit rela-
tively fewer greenhouse
gases throughout their
lifecycle.
SUSTAINABILITY-RELATED RISKS
Companies can protect themselves from
potential supply chain interruptions or
delays associated with suppliers’ practices
with regards to human rights, labour stan-
dards, environment and anti-corruption by
ensuring suppliers have effective compli-
ance programmes and robust management
systems covering all the areas of the UN
Global Compact Ten Principles. For compa-
nies who have single sources for key inputs,
managing risks is also critical to ensuring
continued access to those resources.
Increasingly, customer and investor
expectations and overall society are driving
companies toward more responsible supply
chain management. Strong management of
social and environmental issues helps com-
panies avoid and address adverse impacts to
stakeholders, which can in turn help ensure
that companies maintain their social license
to operate by taking into consideration risks
to surrounding communities. Effectively
managing social and environmental risks
can also help companies avoid potentially
costly operational delays from conflicts with
local communities and can help compa-
nies avoid reputational risks. Furthermore,
companies now face a growing expectation
to disclose information related to their sup-
ply chain as well as an emergence of legal
requirements. In accordance with existing
legislation, some companies have been
required to prove the country of origin of
imported timber (e.g. EU Timber Regulation,
EUTR), report on the use of certain minerals
that originate from conflict-affected coun-
tries (e.g. Section 1502 of the Dodd-Frank
Act) or to report on their efforts to eradicate
slavery and human trafficking in their sup-
ply chain (e.g. California Transparency in
Supply Chains Act of 2010).
Finally, companies use supply chain
sustainability to ensure that their suppliers
can adapt to anticipated strengthening of
environmental regulations (e.g. restrictions
of hazardous substances regulations) and ex-
tended product responsibility legislation, to
reduce potential future liability and to cre-
ate a fairer, more sustainable environment
to operate in. Additionally, end consumers’
demand can be driven by the choice to buy
products containing ethically sourced ma-
terials (e.g. paper from certified sustainable
forestry, fair trade labels).
Westpac, an Australian bank, recognizes the
importance of engaging closely with suppliers
in order to address social, ethical and environ-
mental impacts within the supply chain, protect
the company’s reputation and brand and
ensure a growing source of value creation and
innovation. Westpac manages these risks and
opportunities through a defined sustainable
supply chain management practice.
SUSTAINABILITY-DRIVEN PRODUCTIVITY
A focus on sustainability-driven productivity
in the supply chain can reduce a company’s
procurement costs while also reducing the
environmental footprint of the supply chain,
such as energy, water and use of natural and
synthetic materials. This may also reduce
the harm to worker health and safety and
improve worker motivation, productivity
and cost efficiency.
Other benefits include:
• Increased understanding of key processes
in the supply chain, including natural
resource management and extraction, logis-
tics and manufacturing and enables better
management and stewardship of resources
• More efficiently designed processes and
systems which reduce required inputs and
lower costs.
Productivity and efficiency initiatives re-
quire a full understanding of the different
steps of the supply chain and the key social
and environmental impacts and cost driv-
ers. By addressing the root causes of issues
through strong communication capabilities,
in-depth understanding of business driv-
ers and sustainability trends and shared
assessments and priorities for improvement,
companies can drive improvements and
derive the benefits.
In 2009, Montepaschi Group, a financial
institution in Italy, launched its Sustainable
Supply Chain programme as a key component
of its overall CSR strategy. The company
found that the implementation of the com-
pany’s Supply Chain Sustainability Guidelines
contributed to the positive advancement of
a broad Cost Optimization Plan. This Plan
 17

achieved savings in 2014 of approx. EUR 148

million compared to the 2013 baseline. It “The purchasing power of a
involved the entire cost base and impacted
service models and supplier selection, focus- corporation can become a
ing particularly on real estate, where actions
were implemented to optimize the use of
unique driver for bringing
spaces and reduce energy consumption,
generating 20% of savings; ICT, simplifying
about positive change in
the software and hardware architecture
through an open collaboration with suppli-
society. Companies must
ers, generating 21% of savings; logistics
and security areas, actions focused on ef-
use this power to achieve
ficiency improvement processes to achieve
a “paperless” office and optimizing service
a purpose and make their
contracts in a sustainable manner generat-
ing 14% savings.
supply chain a vehicle
for inclusive growth. In
SUSTAINABILITY-ADVANTAGED a developing economy
GROWTH
Collaboration with suppliers on sustain- like India, the bulk of the
ability issues can foster product innovation.
Companies embarking on such initiatives workforce is employed in the
have added new features and performance
characteristics to existing products and
unorganized sector which
even generated new products. For example,
sustainable products may result in reduced
often constitutes the last mile
negative environmental impacts
compared to traditional products or have
of the supply chain. If this
improved end of life collection and disposal
options. It is also possible for the sustain-
workforce is exposed to the
ability of products to be a differentiating
factor and to lead to increased sales for
advantages of good and clean
some companies. business practices, it would
In 2012, Stora Enso, a global provider of
make a great impact on their
renewable solutions in packaging, biomateri- lives and on the wellbeing of
als, wood and paper, renewed and endorsed
its “Policy for Sustainable Sourcing of Wood the nation.”
and Fibre, and Land Management” to ensure
that all of the roundwood, chips, sawdust
and externally purchased pulp supplied to – Anand Mahindra – Vice Chairman
the company’s mills comes from sustainable & Managing Director, Mahindra & Mahindra Limited
sources. By using forest certification and
traceability systems, Stora Enso checks that
the wood has been harvested in compliance
with the relevant national and EU legislation
and in accordance with their own policy. In
2014 certified fibre accounted for 78% of all
the fibre used by the company.
18 Supply Chain Sustainability

Labour Understanding the Landscape • Is the company sourcing directly or

Recruitment in Beyond identifying business drivers, it is also through third parties? How many third par-
the Supply Chain important to understand the internal and ex- ties (a large or a small quantity)?
In addition to looking ternal landscape of supply chain sustainability • In which sector/countries directly linked
at their product supply including the approaches of peer companies, with the company’s operations are the
chain, companies have the expectations of stakeholders and opportu- main risks of adverse impact on people,
started to recognize nities to partner with others (explored more in environment or governance most present?
that service-providing Chapter 8). E.g. are there any geopolitical issues?
workforces such as • What is the company’s visibility beyond di-
labour recruiters and INITIAL RISK ANALYSIS rect suppliers and how can it be improved?
moneylenders, can carry In order for companies to ensure that the sus-
several sustainability tainable supply chain approach they establish
risks for both inter- is relevant to their particular industry, geog- In consideration of the large size and
nal and international raphy, risk profile and operational context, it global reach of the supply base, Ford Motor
migrant workers. Human is imperative that they understand the supply Company, an American automaker, has
trafficking and forced chain upfront. As a first step of their supply decided to focus its training and assessment
labour are among the chain due diligence, companies need to form efforts in countries that pose the highest
main issues associated an initial understanding of the most salient risk for sub-standard working conditions.
with unethical practices risks and potential opportunities in their own Every year, Ford conducts a risk analysis to
of recruitment agencies. supply chain and how those may impact busi- consider external data, including input from
Since the initial develop- ness resilience. Getting a handle on this data external stakeholders, and then compares it
ment of a supply chain and understanding the dynamics that exist in with the supplier footprint. Internal data in-
programme and strat- complex global chains will help to determine clude: 1) Annual spend, 2) Supplier Location,
egy, companies should what the priorities are, and what the best 3) Commodities being supplied, and 4) train-
also take into account engagement methods might be. ing and assessment history. The high-prior-
labour supply chains and As part of this process, companies need to ity country list combined with prior training
address issues arising seek input from internal colleagues across dif- and assessment history and engagement
from exploitative recruit- ferent functions, as well as from external re- with regional buying community is used to
ing and hiring practices. sources, to identify problematic areas within prioritize the company’s global training and
the supply chain, including those that are assessment efforts.
environmentally sensitive, targeted by NGOs/
government as high risk or that have limited
supply due to unique cultivation. Benchmarking
This initial risk analysis should, at a mini- against Peer Companies
mum, answer the following questions: Peer companies may have already begun ad-
dressing supply chain sustainability. Bench-
• What are you sourcing and from where? marking against peers, customers, suppliers
• What are your key products and services? and even companies from other sectors may
What is generally known about key risks provide a more sophisticated understand-
and impacts in those products and services? ing of the business value as well as ideas to

UN Global Compact Annual Implementation

Survey Results Related to Supply Chain Sustainability
Since 2007, the UN Global Compact has conducted an annual survey of its participants, including questions related
to supply chain sustainability practices. The UN Global Compact Corporate Sustainability Report4 presents key
findings of the Annual Implementation Survey Results, where the implementation of corporate sustainability in the
supply chain has been consistently identified as one of the most challenging areas for UN Global Compact partici-
pants. In particular, the surveys found that although companies are increasingly setting sustainability standards
for their suppliers, they are failing to implement and measure actions that hold suppliers to those standards.
Overall, the trend shows that large companies lead the way in demanding greater commitment from their suppliers.

4
The UN Global Compact Corporate Sustainability Report is available at: https://www.unglobalcompact.org/docs/about_the_gc/Global_Corporate_Sustainability_Report2013.pdf.
 19

incorporate into the design of the company’s
supply chain sustainability programme.
Companies should seek to understand peers’:
• Business case for supply chain
sustainability
• Understanding of human rights, labour, en-
vironment and governance risks, opportu-
nities and impacts and the resulting supply
chain focus
• Internal structure for managing supply
chain sustainability
• Codes of conduct, and the topics included
• Use of their code of conduct
• Approach and programmes to engage
with suppliers
• Metrics to evaluate the success of their
programme
• Reporting practices
In addition, suppliers themselves can often
provide examples of good practices and can
communicate their needs to customers. Some
industries have established joint codes of con-
duct (see Chapter 3) and undertake aspects
of collaborative supplier engagement, such
as cooperation to conduct audits and train-
ing. Collaborative approaches and industry
initiatives are covered in detail in Chapter
8. This information is critical to help avoid
“re-inventing the wheel” of supply chain
sustainability.
Understanding the
Expectations of Stakeholders
Companies should also invest in identifying
and understanding the expectations of their
stakeholders including potentially impacted
individuals and groups, national and local
governments, workers’, migrant workers’
and employers’ organizations and trade
unions, nongovernmental organizations
(NGOs), advocacy and activist organizations,
academic and issue experts, community and
specific stakeholder groups, such as women,
children, older and/or disabled workers,
indigenous groups and minorities as well as
suppliers themselves.
Moreover, companies can also benefit
from seeking input from customers and
investors. Customer and investor demand
is a primary driver for many supply chain
sustainability programmes and insights
from these stakeholders can help shape
programmes and ensure that they create the
maximum return for the company.
Engaging stakeholders early and regularly The Importance
in the process of designing a programme of Investors and
can help companies identify relevant stan- Customers as
dards and approaches to sustainable supply Stakeholders in
chain management.5 Some stakeholders are Supply Chain
knowledgeable about, and sometimes even in- Sustainability
volved in the development of, different codes
Customers and in-
of conduct and certifications for suppliers.
vestors are increas-
Examples include the Kimberley Process for
ingly expecting that
jewelry, Forest Stewardship Council Certifica-
companies under-
tion for wood and paper products and the
stand and manage
SA8000 for responsible labour practices across
impacts in their
industries. They can help evaluate the cred-
supply chains.
ibility of different options and identify which
might be relevant inputs for the company’s Investors want to
programme. ensure that com-
Emerging risks and opportunities in sup- panies are aware of
ply chains. From customers and employees and are mitigating
to activists and NGOs, stakeholders are often key risks affecting
the first to identify emerging environmental, their supply chains.
social, governance and economic impacts in In addition, they are
the supply chain. Companies who engage interested to know
early and regularly with stakeholders have how companies are
the opportunity to take a proactive approach creating value from
to these issues and to partner with stakehold- supply chain sustain-
ers rather than discovering the issues through ability.
a public campaign. Early identification of
Consumers and
issues through stakeholder engagement can
business customers
also help companies take early leadership in
are also encour-
comparison to peers.
aging companies
to more closely
manage their supply
In developing its initial code of conduct,
chains. In particu-
Westpac consulted its Community Con-
lar, some consumers
sultative Council, suppliers and NGOs. The
are seeking more
company included feedback from organiza-
sustainable prod-
tions such as the Australian Conservation
ucts, while business
Foundation, Australian Consumers’ Associa-
customers may
tion, Australian Council of Social Security,
include supply chain
Finance Sector Union and Human Rights and
sustainability in
Equal Opportunity Commission. The Code was
their supplier selec-
enhanced in 2014 to reflect developments
tion criteria.
and lessons learned in Westpac’s own values
and practices, including carbon management,
agribusiness, accessibility and flexibility
practices and indigenous inclusion. The Bank
recognizes that the Code needs to remain rel-
evant and current, and evolve with in consul-
tation with key stakeholders as best practice
becomes the normal expected standard.

5
For a human rights approach on this topic, see Stakeholder Engagement in Human Rights Due Diligence (October 2014, Global Compact Network Germany, Twentyfifty) available at http://www.global-
compact.de/sites/default/files/stakeholderengagement_in_humanrightsduediligence_e_141030_screen.pdf.
20 Supply Chain Sustainability
Establishing a Vision
Having a clear vision and objectives for a com-
pany’s sustainable supply chain programme
will provide direction for its strategy and help
to define its company’s commitment. A vision
will be a helpful yardstick in evaluating the
success of the programme and to identify areas
for continued improvement.
It is important that the development of the
company’s vision and objectives are champi-
oned from the top. This is critical to ensure the
success of the programme. Moreover, to ensure
support from company leaders, it is important
that executives and senior managers from
all parts of the business related to the sup-
ply chain should be consulted in this process
and have a say in the development of the
company’s vision. Companies should consider
how they can include representatives from
supply management, corporate sustainability,
design, marketing, logistics, quality assurance,
compliance, legal, human resources, finance
risk and strategy, diversity and inclusion, en-
vironment and health and safety functions in
creating the vision, as each of these functions
will have a role to play in the implementation
of the sustainable supply chain programme.
For smaller companies, it is equally important
that leaders agree on the vision for sustainable
supply chains.
The output of the process should be a
statement of vision and commitment that is
anchored in the company’s values and ethics.
It is also important to define specific objec-
tives and potential barriers or risk events
affecting their achievement. What is the
company hoping to achieve through a supply
chain programme? What are some long-term
outcomes the company wants to work toward?
How will a sustainable supply chain support
the company’s business strategy? Objectives
can cover a wide range, including: strategic
business goals (e.g. creating long-term value
for the company), operational business goals
(e.g. saving cost by reducing wasted energy and
materials), goals to improve the company’s
reputation (e.g. wanting to change stakeholder
opinions of the company), and compliance-
based goals (e.g. ensuring activities meet all
applicable laws and regulations).
At a minimum, a supply chain vision
should state the company’s commitment to
operate in line with internationally recognized
human and labour rights, and with relevant
environmental standards. However, for most
companies, a vision will also include more
ambitious targets and a longer-term outlook.
Based on the business motivations and
objectives, the company can craft a vision
statement that reflects what is considered long-
term success for a programme. Some examples
of company vision statements are on the next
page. The vision for the company may change
over time. An initial vision will help to frame
how the company will build a strategy ini-
tially. As the company becomes aware of issues
and begins to understand and gain experience,
it may become necessary to “re-set” the vision.
Since its origins, Grupo Arcor, a food prod-
ucts and confectionary business based in
Argentina, has developed a business model
where economic progress is linked to social
development and the preservation of natural
resources. Over the years the company has
deepened this commitment, developing a
Sustainability Policy and Strategy to man-
age risks and opportunities and promote
innovative business practices across the
value chain, creating economic, social and
environmental value for all actors involved.
The specific strategy for sustainable sourcing
focuses on:
■■ Aligning procurement and sourcing policy
and practices with the company’s sustain-
ability requirements;
■■ Addressing key sustainability challenges,
such as sustainable agriculture, prevention of
child labour and sustainable paper sourcing;
■■ Creating inclusive market opportunities for
enterprises in vulnerable conditions while
expanding sourcing options;
■■ Training key stakeholders on main
sustainability issues.
As part of Grupo Arcor’s broader Sustainabil-
ity Policy and Strategy, the initiatives carried
out in the supply chain have been crucial for
projecting a sustainable business with long-
term vision.
 21

Supply Chain Sustainability Vision Statements

L’Oreal
“We are committed to building strong and lasting relationships
with our customers and our suppliers, founded on trust and
mutual benefit. We do business with integrity: we respect
the laws of the countries in which we operate and adhere to
good corporate governance practices….We are mindful of our
impact on the natural environment….We are committed to the
respect of human rights. We want to help end the exploitation
of children in the workplace and the use of forced labour…We
actively seek out and favour business partners who share our
values and our ethical commitments.”

Nokia
“At Nokia, we work hard to anticipate risk, demonstrate
company values, enhance our governance practices, increase
employee satisfaction, and look after the environment and
communities where we do business. We expect the companies
in our supplier network to take a similar ethical business
approach and to demonstrate progress and achievements in
these areas as well as in educating and overseeing the prac-
tices of their own suppliers.
Our aim is to ensure that environmental, ethical and health
and safety issues, as well as labour practices, are not separate
add-on features, but are embedded within all our sourcing
processes, including supplier selection and relationship devel-
opment.”
22 Supply Chain Sustainability

3. Establishing Sustainability
Expectations for the Supply Chain
As the company begins to solidify its vision
for supply chain sustainability, an important
next step is to translate expectations into
a clear set of guidelines that will provide
direction to suppliers and internal colleagues.
At a minimum, the company should expect
suppliers to comply with national laws and
to take proactive measures to avoid environ-
mental and social harm.6 The expectations on
suppliers should be appropriate to their size
and circumstances. They should also enable
the company to be satisfied that its prod-
ucts, operations and services are not directly
linked to adverse impacts caused by the sup-
plier. This may require, for example, more
formal reporting requirements for suppliers
engaged in higher-risk activities.
Overview of Engaging Supply Chain
Management Professionals7
It is critical for any business implementing
sustainable supply chain practices to start
thinking about their own internal approach
to supply chain management professionals
and related functions.
This involves first and foremost ensuring
buy-in from the highest level executive in
the company, and then creating a sustain-
able procurement policy and appropriate due
diligence processes, engaging all supply chain
management professionals and related staff
to understand and implement the policies
and processes. Ideally, the policy will cover
buying/procurement ethics and describe
how supply chain management profession-
als within the company should be engaged
to ensure respect of the UN Global Compact
principles. It will also be in alignment with
the supplier code of conduct, as described in
the section below.
Finally, depending on how large and com-
plicated the company structure is, it may be
helpful to establish internal policies and pro-
cedures to explain how the supplier code of
conduct should be implemented by staff and
systems of accountability. The effectiveness of
the code depends on successful enforcement
mechanisms, which can vary from company
6
Guiding Principles on Business and Human Rights: Implementing the United Nations “Protect, Respect and Remedy” Framework (Office of the High Commis-
sioner for Human Rights, OHCHR, 2011), available at http://www.ohchr.org/Documents/Publications/GuidingPrinciplesBusinessHR_EN.pdf.
7
See definition on pg. 7.
23
to company. Some companies have dedicated
staff to overseeing its correct use, while oth-
ers assign implementation duties to person-
nel whose core responsibilities lie in other
functions such as sourcing, quality assurance
or production engineering.
Overview of Supplier Code
of Conduct
Codes of conduct are critical to establishing
and managing expectations for both customers
and suppliers. They create a shared foundation
for sustainability from which supply chain
management professionals, suppliers and
other actors can make informed decisions.
For many companies, a supplier code of
conduct is seen as a natural extension of
corporate values statements to apply to an
increasingly important part of the business
and as an affirmation of existing expectations
rather than a new set of requirements. As
such, the supplier code of conduct should be
endorsed by the highest level executive in the
company by making a public statement of
approval of either the document and/or the
importance of the company’s supply chain
sustainability programme.
When developing supplier codes of conduct,
there are a number of international standards
that should also be consulted and referenced.
These are outlined in the sections below.
Adopting or Writing
a Supplier Code of Conduct
The UN Global Compact Ten Principles out-
line each of the areas that need to be covered
for a supplier code of conduct to be consid-
ered comprehensive. During the external
landscape review outlined in Chapter 2, many
companies will find that other companies
in their industry have already created joint
codes of conduct. These codes are designed
to minimize the burden on suppliers by
reducing the number of standards with which
they must demonstrate compliance. They
are also intended to streamline the process
of conducting joint audits of suppliers and
to reduce the effort required of companies to
design their own codes.
24 Supply Chain Sustainability

However, there is a risk that joint codes do
not address all the issue areas of the Global
Compact, or will not meet specific concerns
for the business. In this case, businesses
should still adhere to the joint code, but be
ready to supplement it with specific policies
to address those uncovered risks. There is also
a risk that adoption of industry codes will be
the end rather than the beginning of the road
to improved supply chain sustainability, so
it is important that there is internal commit-
ment and resources to integrate the code into
supplier relationships.
If there are no joint codes that are compre-
hensive for a certain industry, or a company
determines that they are not appropriate for
their supply chain, there are several princi-
ples and initiatives that apply to supply chain
management that should be referenced.
For the procedural elements of the code
relating to social impacts, companies should
refer to the UN Guiding Principles on Busi-
ness and Human Rights, which outline the
policies and processes that all companies,
including suppliers, should have in place
to ensure that they respect human rights
(including labour rights).
For the social substantive elements of the
code, companies should refer to the UN Dec-
laration of Human Rights, the International
Covenants on Civil and Political and Economic,
Social and Cultural Rights, the International
Labour Organization’s (ILO) Declaration on
Fundamental Principles and Rights at Work as
well as the Tripartite declaration of principles
concerning multinational enterprises and
social policy (ILO MNE Declaration), which
establish common expectations on a broad

Topics and References to Consider in

Writing and Adopting a Supplier Code of Conduct*

Potential Sources
Sample Policy Areas that Align with the UN Global Compact Ten Principles
to Reference:

Human Rights and Labour Environment United Nations Global Compact

1. Forced labour 20. Material toxicity and chemicals Universal Declaration of Human Rights
2. Child labour 21. Raw material use UN Guiding Principles on Business and Human
3. Working hours 22. Recyclability and end of life of products Rights
4. Wages and benefits 23. Greenhouse gas emissions ILO Declaration on Fundamental Principles and
5. Humane treatment 24. Energy use Rights at Work
6. Nondiscrimination and equality 25. Water use and waste water treatment ILO Tripartite declaration of principles concern-
7. Freedom of association and 26. Air pollution ing multinational enaterprises and social policy
collective bargaining 27. Biodiversity (ILO MNE Declaration)
8. Occupational health and safety 28. Deforestation ILO International Labour Standards on Occupa-
9. Emergency preparedness tional Safety and Health
10. Occupational injury and illness Women’s Empowerment Principles
Anti-Corruption
11. Fire safety
29. Conflict of interest Children’s Rights and Business Principles
12. Building structure and integrity
30. Gifts, meals and entertainment OECD Guidelines for Multinational Enterprises
13. Industrial hygiene
31. Bribery and kickbacks The Rio Declaration on Environment and
14. Leave entitlements
32. Accounting and business records Development
15. Freedom of speech
33. Protecting information United Nations Convention Against Corruption
16. Human trafficking
34. Fair competition
17. Privacy ISO 14001
35. Reporting misconduct
18. Minority rights ISO 26000
19. Rights of specific stakeholder SA8000
groups: indigenous people,
women, children, older work- OHSAS 18001
ers, workers with disabilities,
migrant workers

* This list does not represent a comprehensive record of all existing issues under human rights, labour, environment and anti-corruption standards. Companies may need to consider additional
areas depending on the circumstances.

range of issues concerning work, employment,
social security, social policy and human rights.
Companies should also include anti-discrimi-
nation policies to promote equal opportunity
for women, young, older and migrant workers,
and minority and indigenous groups work-
ing in the supply chain and establish bench-
marks to evaluate their effectiveness as well
as develop specific provisions to protect these
vulnerable categories of workers.
Environmental topics that are most
relevant will vary by industry, which makes
dialogue and collaboration critical to identify-
ing which issues are most important to cover
in the code of conduct. The UN Global Com-
pact’s three Environmental Principles – to
support a precautionary approach to environ-
mental challenges, undertake initiatives to
promote greater environmental responsibility
and encourage the development and diffu-
sion of environmentally friendly technologies
– should form a central part of a company’s
code of conduct.
With regard to anti-corruption practices,8 it
is important to review the relevant legislation
both at national and international level for
compliance and include in the code common
corruption scenarios, so that suppliers can
identify risks and are prepared to respond
appropriately. It is also important to regularly
assess the content of the code to determine
whether updating and further interpretation
is needed.
Key steps in development of a code include:
1. Gain commitment from Board of Directors
and high-level executive management.
2. Consult with stakeholders, including civil
society, suppliers and peers
3. Base expectations on existing international
norms of behavior rather than inventing new
standards to avoid undermining international
law and prevent conflicting expectations for
suppliers with multiple buyers
4. Draft the code with the involvement and
support of key company managers from cross
functional teams that are critical for getting
buy-in for effective implementation and
enforcement, including supply management,
design, marketing, logistics, quality assur-
8
For detailed discussion of anti-corruption in the supply chain, including model language for a code of conduct, refer to the Global Compact
publication Fighting Corruption in the Supply Chain: A Guide for Customers and Suppliers (UN Global Compact, 2010), available at http://supply-chain.un-
globalcompact.org/ and Stand Together Against Corruption (UN Global Compact, 2013), available at https://www.unglobalcompact.org/docs/issues_doc/
supply_chain/StandTogether.pdf.
25
ance, compliance, legal, human resources,
finance risk and strategy, diversity and inclu-
sion, environment and health and safety
5. Consult with the cross functional teams, in
particular supply chain management profes-
sionals
6. It is strongly encouraged to consider a re-
quirement that suppliers cascade these expec-
tations to their supply base to ensure they are
applied throughout the whole supply chain
7. Consider consulting external credible
written or online sources, when available, or
refer to the external expertise of recognized
professionals
8. Include clear expectations for informed
workplaces
9. Include clear expectations around griev-
ance mechanisms
Though products are increasingly delivered
online, print publications are still a significant
part of RELX Group’s business, and the com-
pany purchases a large amount of paper. The
company’s challenge was to better understand
the sustainability of the paper it uses. To ensure
suppliers meet the ethical standards RELX
Group set for its own behavior, the company
began its Socially Responsible Supplier (SRS)
programme in 2003. The cornerstone is the
RELX Group Supplier Code of Conduct, which
incorporates the ten principles of the UN Global
Compact. Suppliers are asked to sign and
prominently post the Code in their workplaces.
It also helps suppliers spread best practice
through their own supply chain by requiring
subcontractors to enter into a written commit-
ment that they will uphold the Supplier Code.
RELX Group conducts an annual survey asking
suppliers to communicate their performance on
all elements of the Code and the ten principles,
not only on key environmental issues but also
on ensuring they do not use child and involun-
tary labour, avoid workplace discrimination and
promote freedom of association. This data is
complemented by information gathered through
PREPS, a shared industry resource for paper
sustainability. PREPS fosters positive engage-
ment with paper suppliers and RELX Group is a
founding member.
26 Supply Chain Sustainability

Using the Supplier Code of Conduct

Levi Strauss & Co. was the first multinational
In order to meet the company’s goals for
company to establish Global Sourcing and
supply chain sustainability, the code should
Operating Guidelines, which outline the com-
be used as the foundation for setting internal
pany’s commitment to responsible business
and external expectations and as a framework
practices everywhere it conducts business.
for action and engagement with suppliers and
These guidelines include two parts: (1) Country
other stakeholders.
Assessment Guidelines, which help assess po-
A new code needs to be shared throughout
tential opportunities associated with conduct-
the company to raise awareness of the stan-
ing business in specific countries and (2) the
dards it describes. Supply chain management
Sustainability Guidebook (originally known as
professionals will need to gain familiarity
the company’s Terms of Engagement or TOE),
with the elements of the code in order to com-
which help to identify business partners who
municate it to existing and new suppliers and
follow workplace standards and business prac-
to detail how the company intends to work
tices that are consistent with the company’s
with them to ensure compliance and continu-
values. The Sustainability Guidebook applies
ous improvement. The code should mirror the
to all suppliers and is periodically updated to
company’s procurement policy, which covers
follow the progress of their standards. In 2014,
the suppliers’ performance. Possible avenues
updates included guidelines on migrant work-
of dissemination include internal websites
ers and fire safety and building integrity.
and ongoing trainings particularly to ensure
new staff are aware of expectations and regu-
lar communications from senior management
The Electronic Industry Citizenship Coali-
to reinforce the importance of the code.
tion (EICC), an industry association of more
Companies often take a variety of ap-
than 100 of the leading companies in the
proaches to communicating codes to suppliers
information and communications technology
including:
industries, established a single supply chain
• A special, one-time communication.
code of conduct that provides a united voice
This approach is often most effective
for customer expectations, streamlines the
when the communication comes from
oversight of supply chain conditions for both
the highest level executive in the com-
suppliers and customers and allows both to
pany such as the CEO or Chief Procure-
focus on changing social and environmental
ment Officer.
conditions. Each member company in the EICC
• Inclusion of the code at first points of
has committed to adopting the code of conduct
contact with suppliers. Companies are
and implementing it in their supply chain. The
including the code at the very start of
EICC has worked to close the gaps between
new relationships with suppliers by post-
its code of conduct and the Guiding Principles
ing it on their websites and including
on Business and Human Rights and, as a result,
it in Requests for Proposals/Quotations.
has added key issues to its provisions, includ-
This helps to raise awareness among
ing freedom of association, non-discrimination,
potential suppliers of the importance
peaceful assembly and other key issues.
sustainability will play in their relation-
ship with the company.
• Integration of the code into supplier
Developed by the International Trade Centre
contracts. Many companies also choose
(ITC), Standards Map is a global publicly-avail-
to integrate the code into supplier con-
able online platform which provides compre-
tracts, or in some cases purchase orders,
hensive information on voluntary sustainability
by asking their suppliers to commit in
standards covering a variety issues, from
contracts to complying with the expecta-
labour rights to environmental criteria. The
tions set out in the code.
platform enables users to explore and compare
• Review of the code at a regularly
more than 175 sustainability standards, identify
scheduled business meeting. Link-
opportunities for product diversification and
ing the introduction of the code to an
new niche markets, and visualize standards
established business process and having
requirements and scope. The main objective is
supply chain management professionals
to strengthen the capacity of producers, export-
present the information will demonstrate
ers, policymakers and buyers to participate in
the strength of the connection between
more sustainable production and trade.
business and sustainability performance.
 27

It can also be useful to have supply chain

sustainability representatives partici-
pate in these meetings if there will be
interactions between those individuals
and suppliers in the future as part of the
engagement and evaluation process.
• Annual supplier acknowledgement
of supplier code of conduct. Suppli-
ers annually renew their commitments
(online or in written form) to endorse
customers’ expectations with regard to
sustainability.

Telenor, a global provider of telecommuni-

cations services from Norway, implements
its code of conduct through agreements on
responsible business conduct with suppliers.
These agreements require suppliers not only to
commit to the code, but also to allow monitor-
ing and sanctions for non-compliance. Telenor
also requires suppliers to cascade the com-
pany’s code of conduct requirements to their
suppliers and reserves the right to monitor any
tier in the supply chain.
28 Supply Chain Sustainability
 29

4. Determining the Scope

the mines from which these minerals are
An important step in designing a sustainable
sourced are several steps away from Voda-
supply chain programme is to determine the
fone in the supply chain. Since the company
its scope. Given the scale and complexity of
does not manufacture any products or pur-
most companies’ supply chains, it is important
chase metals directly, it works closely with
to choose areas of the supply chain to focus on
suppliers and industry initiatives to ensure
where a sustainable supply chain programme
that products sold or the electronic equip-
is likely to have the most impact.
ment that is bought and used in its opera-
The objective of this chapter is to provide
tions do not contain conflict minerals.
guidance on how to identify which suppliers a
company should engage with first and to what
extent, noting that programme boundaries
Pig iron, a key ingredient in steel produc-
tend to change over time as companies become
tion, is one of several products flagged by
more sophisticated and capable to manage
the U.S. Department of Labor as posing a
supply chain sustainability.
potential human rights concern, primarily
When developing a supplier programme,
because of its historic use of forced labour.
best practice requires companies to look at
In response to these concerns, Ford Motor
their supply chain as a whole, including
Company has taken steps to mitigate the
suppliers beyond their first tiers (the sub-tier
use of human trafficking within the produc-
suppliers), and to identify the areas where sus-
tion of pig iron. In 2014, Ford reached out
tainability challenges are most likely to occur.
globally and sought assurances from its
To do so, there are two general steps.
steel suppliers that forced labour was not
employed anywhere in its value chain. This
1. Supply Chain Mapping: Companies should
included an intensive mapping of five to six
ensure that there is the foundational knowl-
tiers of suppliers (including importers, ex-
edge within the company of who and where
porters and trading companies) and requests
the suppliers are in the supply chain and,
for additional details regarding its Tier 1
particularly, to understand as much as possible
suppliers’ systems for safeguarding human
about their extended supply chain beyond the
rights throughout operations. The review
first tier.
did not reveal any issues within Ford’s steel
2. Supply Chain Prioritization: Companies
supply chain. The company plans to begin
should then identify areas where the risk of
similar efforts for other commodities in
adverse impact on human rights, environ-
future years.
ment and governance is the most significant.
This prioritization will then allow companies
to take the appropriate actions with different
In the development of Telenor Group’s
suppliers.
responsible supply chain programme, Tele-
nor formally did not exclude any tier of the
supply chain from the start. Further, Telenor
Vodafone, a UK-based multinational tele-
also defined “suppliers” to include any kind
communications company, conducts due
of contractual partner, except customers.
diligence process in line with the OECD Due
The practical scoping of this on an opera-
Diligence Guidance for Responsible Supply
tional level is carried out through supply
Chains of Minerals from Conflict-Affected
chain risk assessment and prioritization
and High-Risk Areas to identify in the supply
within practical efforts.
chain the use of minerals that directly or
indirectly finance or benefit armed groups
in conflict regions, commonly referred to as
“conflict minerals”. Both the smelters and
30 Supply Chain Sustainability

Sample Supply Supply Chain Mapping products sourced from regions that are com-
Chain Risk Events Companies should start by mapping their monly recognized for sustainability issues
for a Food Com- supply chain to have an understanding of or suppliers whose nature of the business
pany* where their suppliers are capturing that data activity is usually associated with a set of
Child Labour: in a common system and attempting to un- common sustainability risks. Additionally,
Allegations of child la- derstand the relationships further down the companies can identify their largest catego-
bour on farms in supply supply chain. In some instances, regulation ries of procurement spend and categories
chain surface. will compel companies to be able to map that are critical to business operations in
their supply chains to identify their impacts terms of little or no availability of alterna-
Working Hours & further down the chain. tive options and impact of supply chain
Wages: To do this, it is often easiest to start with disruption.
Workers in food pro- a picture of the generic supply chain for the For each area identified, companies
cessing plants strike industry or product/s that the company is sell- should trace the flow of materials and infor-
due to low wages and ing and fill in gaps. A generic product supply mation. The whole supply chain should be
unpaid overtime wages. chain is illustrated in the figure below. considered for this exercise — going back
Corruption: In some industries, many companies cite to raw materials and original suppliers. No
A supplier’s manage- that it is difficult to be able to map their assumptions should be made — it is impor-
ment misuses revenues supply chain much below the first tier. tant to understand the relationships and
or royalties for corrupt However, it is possible to conduct this map- transactions as they actually exist. Category
purposes. ping through shared data systems, category managers and suppliers can provide useful
manager / buyer knowledge and by asking information. In some cases, agents or whole-
Food Safety: suppliers. salers may play key roles.
Processing plants fail to Companies with very large supply chains However a company manages this activ-
properly clean machin- may use different filters to decide which ity, at the end, they should have a map
ery and unintended and areas to map first. In order to ensure they showing where and how the inputs, raw
potentially hazardous address the most problematic sections, best materials, and products and services that
substances end up in practice would require businesses to start they buy are flowing around the world.
product. looking at general high-risk areas, such as
Indigenous People:
Farming is undertaken
on land that is sacred
or otherwise essential generic supply chain stages from
to lives or livelihoods a retailer perspective
of indigenous people,
mainly women, who Supply Chain
are often the primary
gatekeepers of natural
resources and land and
have little negotiation Raw Consumer
Manufacturing/ Transportation/
Materials Packaging Retail Use/ End
power. Processing Storage
of Life
Pollution:
Processing plants fail
to properly treat water
effluents and are not in
compliance with local
regulations.

* This list is provided for illustrative

purposes. It is not intended to be
comprehensive.
 31

“We live in an increasingly

resource aware and resource
constrained world. We need
to live within our means
and not borrow from
the future. To build a
sustainable tomorrow we
need to make our supply
chain sustainable today.
In fact, I firmly believe that
increased sustainability
in the supply chain reduces
risks and increases profits
for all organizations and
stakeholders.”
– Kris Gopalakrishnan, CEO and Co-Founder of Infosys
32 Supply Chain Sustainability
Supply Chain Prioritization
With a good understanding of the supply
chain map, companies can then identify
and prioritize where the most problematic
areas lie, and should focus on the areas that
present the greatest risk of adverse impact on
people, environment and government accord-
ing to the country, sector, activity or type of
relationship with the supplier. It is very likely
that the key areas that need addressing are
not in the first tier supply chain. For some
industries, the highest risks may lie in the
specific service they use; for others, it may be
a country where they source one of their raw
materials. For example, electronics compa-
nies are beginning to focus on minerals that
are extracted from regions affected by social
conflict and where human rights violations
are present.
To identify the priorities in the supply
chain, companies should gather informa-
tion on environmental, social or governance
issues and identify priority areas where risk
of adverse impact on people, environment
and governance is most severe. Actual and
potential risk areas can be evaluated based
on the country, sector, nature of the busi-
ness activity or type of relationship with the
supplier. Some of the recommended tools and
resources to identify risks can be found in the
textbox below.
Tools and resources
Geographic risks: • International Trade Union Con-
• World Bank Worldwide federation website and reports
Governance Indicator • Human Rights Watch website
• Amnesty International Commodity-specific risks:
Country Reports • Industry & issue-specific re-
• US Department of State ports from various international
Country Reports research institutions (e.g. US
• Human Development Index Dept’ of Labor, Human Rights
• Economic Freedom Index Watch, Oxfam, Anti-Slavery
• Corruption Perceptions Index International)
• Office of the High Commissioner • The Human Rights and
for Human Rights website Business Dilemma Forum
• Business and Human Rights
Resource Centre Supplier performance:
• Guardian Sustainable Hub • Supplier self-assessment
• Freedom House website • Audit results
Companies should first assess where are the
biggest risks to human rights, labour, the envi-
ronment and ethics in the company’s supply
chain. The severity and potential irremediabil-
ity of risks to stakeholders should be the driving
factor in prioritizing critical elements of the
supply chain, particularly in the area of human
rights. Severe risks or risks that may be irreme-
diable should be “red flags” in a prioritization.
Additionally, other criteria can be consid-
ered, including but not limited to:
• Business Risk: What are the risks in the
company’s supply chain that could impact
ability to do business and meet the vision
set forth for supply chain sustainability?
• Risk to Economic Development: What
are the risks for exclusion of small- and
medium-sized enterprises (SMEs) when
introducing code demands, monitoring and
auditing schemes?
Both societal and business risk can be
influenced by:
• Country/area: Which countries or areas
do the company’s suppliers operate in,
and which of those countries/areas may be
higher risk because of weak rule of law,
prevalence of child or forced labour and
other human rights abuse, high levels of
corruption, conflict, etc.?
• Supplier reputation and ownership:
What is the past record of performance,
previous audit results, reputation of suppli-
ers and what links, if any, do they have to
governments?
• Spend/leverage: Which suppliers does the
company have the highest spend with,
including direct and indirect spend? For
which suppliers does the business repre-
sent either a major or a small part of their
business? Which suppliers does the com-
pany potentially have the most leverage
with? This issue is particularly relevant to
determining what the company can do in
response to identified risk.
• Category: Which suppliers, including sup-
pliers for products and processes, are most
business critical for the company?
• Tier: Which suppliers sell to the company
directly, and which are sub-tier suppliers?
• Nature of transaction: Does the transac-
tion contribute to increased or decreased
transparency and accountability for condi-
tions in the supply chain? For example,
sub-contracted labour, brokers, agents and
 33

In 2010, Maersk, a global shipping and en-

middlemen may lead to gaps in knowledge,
ergy conglomerate, developed the Respon-
awareness and influence.
sible Procurement programme including
over 100,000 supplier participants. To find
There are two main steps to assessing risk
a broad and efficient way to gain transpar-
and impact in the supply chain:
ency over its supply chain, Maersk chose
at first to focus its attention on top spend
1.Identifying Risk Events. Events, such as
suppliers, strategic suppliers in high-risk
underpayment of wages at a factory in the
countries and suppliers delivering products
company’s supply chain, have a negative
and services produced in an operational
impact on workers and create risk for the
context that requires attention. Four years
business. Companies should draw on the
after the development of its Responsible
expertise of internal staff and external
Procurement programme, the company has
stakeholders to identify social, environmen-
decided to adjust its focus on suppliers of
tal, economic and governance risks that
services and products that have or may have
have the most severe impact on society. Risk
a high risk of negative impact on people and
assessment should also involve meaning-
environment, with assessments of social
ful consultation with potentially affected
and environmental practices being made
groups of stakeholders, paying special atten-
before a contract is signed. Three factors
tion to groups that may be at risk of height-
contributed to this change: 1) the company
ened vulnerability due to marginalization,
gained a clear overview of where the issues
including children, women, persons with
and risks lie, 2) requests from Maersk’s
disabilities, migrant workers, ethnic minori-
buyers for clarity around which suppliers’
ties, indigenous groups and the elderly.
practices must be assessed, and 3) desire to
Internally- and externally-driven events that
align with the provisions of the UN Guiding
may not only be against the law, but also
Principles on Business and Human Rights.
affect the achievement of the company’s
sustainable supply chain and business
objectives must be identified. Risks to the
business can include business continuity,
regulatory, reputational, market acceptance
and customer requirements risks.
Supply Chain
2. Assessing the Likelihood and Severity of Sustainability Risks:
Risk Events. Risk events should be analyzed
to understand their likelihood and potential
impact on people, environment and gover-
nance. This will determine how they should
be managed under the company’s supply
chain sustainability programme.

Many companies find it helpful to plot each

Risk likelihood

risk event on a grid, where the two axes are

“Risk Likelihood” and “Risk Impact/Severity
on People, Environment and Governance,” as
in the mapping to the right. The perspective
of the stakeholders or affected groups should
be taken into account when evaluating the
“Risk Impact/Severity on People, Environ-
ment and Governance” and setting priorities
for action. In evaluating human rights risks,
risks to stakeholders should determine the
severity rating rather than merely the mag-
Risk Impact/Severity on People,
nitude of the risk to the company.
Environment and Governance
The company can use the placement of
events on the grid to help determine the rela-
tive priority of the issues and the efforts and
course of action needed to address them.
34 Supply Chain Sustainability

Companies should be mindful that these two
steps of mapping and prioritization may not
be completed within a short timeframe, espe-
cially not when conducted for the first time.
Allocation of appropriate resources, both
internally and externally, will help perform
this task in a more efficient timeframe and
establish a framework that can be replicated
to evaluate additional risk areas.
ArcelorMittal, a mining company based in
Luxembourg, has a USD 50 billion supply
chain extending from basic raw materials
like iron ore to sophisticated downstream
products and services. The company has
mapped out the most significant sustain-
ability related risks and opportunities for
each category of the supply chain, based on
desk research, as well as input from internal
experts, users and the respective category
purchase teams. ArcelorMittal has found
that mapping risks in a method that is both
robust, but also simple and aligned with
the organization’s core risk management
approach, is essential to crystallize the
key priorities to be addressed. The com-
pany chose a 2 x 2 matrix (Impact x Likeli-
hood) for each purchase category and held
workshops with participants from the wider
internal workgroups to discuss the chal-
lenges as well as opportunities in each of
these categories. This process will need to
be repeated on a regular basis to ensure the
risk map remains up to date.

Epson, a Japanese technology hardware and equipment company, has organized its suppli-
ers by control level. Suppliers are categorized into five levels depending on their impact on
the company’s CSR initiatives and ability to sustain production.

Supplier control levels

Control Guidelines
Level

Level 1 Low impact on CSR & compliance, no impact on production

Level 2 Some impact on CSR & compliance, no impact on production

Level 3 Some impact on CSR & compliance, indirect impact on production

Level 4 Some impact on CSR & compliance, direct impact on production

Alternative supplier available

Some impact on CSR & compliance, direct impact on production

Level 5
Alternative supplier not available, major problems maintaining pro-
duction
35
36 Supply Chain Sustainability

5. Engaging with Suppliers
Once companies have identified the scope of
their programme and priority areas for action,
the next step requires engaging with suppliers
to address the most severe sustainability is-
sues in the supply chain. The goal of engaging
with suppliers is to develop a shared mindset
about sustainability issues, to build supplier
ownership of their sustainability vision,
strategy and performance and to work more
closely with suppliers with shared priorities.
This chapter explains different ways that
companies can engage with and strengthen
their influence on suppliers to address
sustainability issues that are linked to the
company’s operations, products or services
through supply chain relationships. The
Supplier Engagement & Continuous Improvement
Monitoring, Evaluation,
Accountability
and Learning
Monitor and assess the ef-
fectiveness of programme
and its impact on people,
environment and governance.
Learn from experiences and
increase accountability to Monitoring,
different stakeholders. Evaluation,
Accountability
Training & Capacity and Learning
Building – Partnerships
Collaborate with others to
build supplier ownership and
understanding to remediate
instances of non-compliance,
as well as invest in manage-
ment capabilities for continu- Training &
ous improvements. Support Capacity Building –
suppliers to address the root
Partnerships
causes of poor sustainability
performance.
Remediation
Collaborate with suppli-
ers to address issues of
poor performance. Define
and incentivize continuous
improvement.
mechanisms described in this chapter are fo-
cused on raising awareness and encouraging
suppliers to integrate and drive sustainability
into their business, setting expectations, ongo-
ing monitoring and partnering with suppliers
to overcome barriers to improvement.
The figure below shows the steps that
should be taken by companies across a wide
range of industries to continuously engage
with suppliers on supply chain sustainability.
Each has specific purposes and drives continu-
ous improvement. These steps can be fol-
lowed to effectively address issues in the first
tier as well as with sub-tier suppliers.
Expectation
Setting
Risk & Impact
Assessment
Sustainability
Assessment
Performance
Remediation
37
Expectation Setting
Adopt code of conduct.
Communicate about your
sustainability expectations to
suppliers. Incorporate expec-
tations, including the code of
conduct, into contracts. Es-
tablish clear benchmarks and
incentives for consistently
strong performance.
Risk & Impact Assessment
Map and segment the supply
chain. Determine the scope
of efforts focusing primarily
on areas where there is the
greatest actual and poten-
tial risk of adverse impact
on people, environment and
governance.
Sustainability Assessment
Performance
Assess the sustainability
performance of suppliers,
using different processes for
different needs (e.g., busi-
ness relationship potential/
actual risk, impact on people,
environment and gover-
nance). It can include self-
assessments, audits, worker
surveys, etc.
38 Supply Chain Sustainability
Selecting Communications
Channels
The first step to improving sustainability in
the supply chain is to raise awareness of your
company’s expectations for sustainability per-
formance. Many companies use their codes of
conduct to do so (as described in Chapter 3)
and/ or include requirements to address and
prevent sustainability issues in appropriate
contract provisions. In many cases, binding
requirements for suppliers in codes of con-
duct or contract provisions also require sup-
pliers to implement the same criteria vis-à-vis
their own suppliers. Some companies may
require suppliers to sign binding agreements
with sub-contractors/sub-suppliers.
In addition, there are two additional com-
munication methods to consider:
Creating Incentives for Strong
Sustainability Performance
Many companies starting out in supply chain sustainability are focused
on addressing situations when supplier performance on sustainability
issues is poor. However, often suppliers are more motivated by incen-
tives for strong performance than by negative consequences.
As the supply chain sustainability programme evolves, an increasing
number of companies consider establishing clear benchmarks and re-
wards for consistently strong performance. Incentives could include:
• Reducing the number of audits conducted
• Establishing a preferred supplier programme
• Increasing business
• Providing recognition and awards
• Allowing participation in strategic buyer/supplier planning meetings
• Sharing costs for sustainability improvements
• Providing assistance for capability building
To help suppliers meet higher standards for health and safety and
encourage them to invest in safer working environments, Levi Strauss
& Co. partnered with the International Finance Corporation (IFC)
to offer reduced loan financing to those suppliers with the strongest
sustainability performance based on the company’s Terms of Engage-
ment. Levi Strauss offers direct financial incentive for suppliers to
improve environment and social standards through IFC’s $500 million
Global Trade Supplier Finance program. This program provides short-
term finance to emerging-market suppliers and small- and mid-sized
exporters.
Using existing customer-supplier
communications.
Every company has some existing processes or
methods to communicate with suppliers. These
can vary from very basic to very sophisticated
approaches. Often these communications are
led by supply chain management profession-
als and focus on the business aspects of the
relationship.
The company should consider how to
regularly incorporate sustainability expecta-
tions and dialogue into these communications
to help build shared mindset, reinforce key
messages and provide the opportunity for
feedback. This approach has the benefit of
providing a dialogue platform where the sup-
plier can in turn raise issues of constraints or
tensions created by the company’s demands
(such as short lead times or many changes to
order specifications). Having the right parties
around the table can help identify ways to
meet both the business and sustainability
requirements.
In order to power sustainability and trans-
parency in its supply chain, Mahou San
Miguel, a Spanish food and beverage com-
pany, developed a Supplier Portal to collect
information about suppliers, including their
alignment with the company’s CSR policies.
This open channel offers useful informa-
tion to suppliers and allows the company
to carry out an objective selection of them.
Mahou San Miguel also developed a Train-
ing programme to help suppliers build their
awareness about CSR, adding value to the
business.
Adding sustainability to the
agenda of supply chain forums.
By participating in supplier forums and
talking about sustainability expectations in
the industry, the company can help identify
organizations that share its issues and priori-
ties. These discussions, which can include
suppliers, but also peers, partners, policymak-
ers and a broad range of other stakeholders,
allow the company to share details about its
priorities and expectations and learn from
others about their approaches. These forums
can also provide an important opportunity to
get feedback on the company’s programme
and identify areas for improvement, as well
as to build support for addressing systemic
challenges that require a shared response.

As their supply chain sustainability pro-
gramme evolves, companies can use these
forums to also recognize suppliers for their
strong sustainability performance.
As the first step in the development of its
ethical procurement programme in 2006, Fuji
Xerox Co., Ltd., a Japanese imaging technol-
ogy company, conducted an “ethical procure-
ment study sessions” with its nine key suppli-
ers’ executives. The study sessions included a
five-day study meeting in Shenzhen, China with
approximately 50 participants, including the
executives of the suppliers, their factory presi-
dents in Shenzhen area and Fuji Xerox of Shen-
zhen executives. The suppliers’ study group
was critical to the successful launch of the
company’s ethical procurement programme.
In 2014, based on its successful experience
in China, the company organized a seminar
with its suppliers in Hai Pong, Vietnam before
distributing the self-assessment questionnaire.
Ongoing communication is maintained with key
suppliers in Hai Phong to identify Vietnam’s
unique sustainability risks and issues.
In 2009 and 2012, the Coca-Cola Company,
a food and beverage company based in the
United States, brought a group of top global
suppliers to its Global Supplier Summit to
participate with Coca-Cola’s senior man-
agement in a discussion about the need for
business to embed sustainability as a critical
element of growth plans. Rather than setting
top-down directives, the company sought
suppliers’ strategic counsel in ensuring long-
term mutual success in improving sustain-
ability in the supply chain. Following the first
Summit in 2009, Coca-Cola received nearly
200 proposals from suppliers, including
ideas and strategies related to sustainable
packaging, logistics, sustainable agriculture,
water stewardship and portfolio innovation.
In 2013, building on the previous Global
Supplier Summits, the company launched a
Supplier Awards programme in conjunction
with a global gathering held to engage sup-
pliers on sustainability, innovation and other
strategic long-term objectives. The company
now gives awards to suppliers for Innova-
tion, Sustainability, Quality, Value and an
overall Supplier of the Year Award.
39
Monitoring and Evaluations
A monitoring system provides information on
how well suppliers are peforming on sustain-
ability practices as well as specifically the
degree to which they are complying with the
codes a company has put in place. Monitor-
ing systems can be effective in establishing
baseline measurements and assessing recent
and current performance relative to a code’s/
company’s requirements. Understanding how
the supply chain performs against these base
criteria is a crucial element and a core part
of a company’s commitment to continuous
improvement. However, compliance-based
approaches to monitoring have resulted in
concerns about costs, disruptions to produc-
tion of suppliers, doubts about the accuracy
of the information and potential risks to
safety of workers. Companies should carefully
consider what approaches to use and with
which suppliers in order to get reliable infor-
mation and avoid over-reliance on compliance
audits. The goal of monitoring systems should
be to understand whether issues are being
addressed over time, and whether the supply
chain programme and actions committed to
by suppliers are having the desired effects.
Supplier self-assessments
Many companies invite suppliers to self-assess
their sustainability performance as an initial
screen in selecting new suppliers or as part of a
risk assessment for identifying which suppliers
may require closer attention. Self-assessments
can provide companies with useful informa-
tion and also increase suppliers’ understanding
of customers’ expectations. Many companies
also find that self-assessments are a good start-
ing point to cover a significant portion of the
supplier base in a relatively short time frame
and at relatively lower cost than audits.
It should be noted that, if used as a stand-
alone method, self-assessments could lead to
inaccurate data if the company has no other
verification process in place. Reliable self-
assessments depend on trust, a suppliers’ com-
petency to gather information from disparate
parts of their organizations and clear commu-
nications so that they understand what is being
asked and how their information will be used.
For example, the problem of double books is
sometimes due to suppliers’ concern that their
poor performance will result in immediate loss
of business.
40 Supply Chain Sustainability
Protecting
Workers Who
Participate in
the Monitoring
Process
■■ Workers who partici-
pate in the monitoring
process should be pro-
tected from retaliation.
■■ Workers should
be assured that they
can speak freely and
information that they
provide will not be
attributed to them as
individuals.
■■ Workers should be
provided means to
communicate in their
native language, when
possible.
Hewlett-Packard (HP), a large informa-
tion technology company and member of the
Electronic Industry Citizenship Coalition
(EICC), requests that suppliers identified as
medium- or high-risk complete an electronic
self-assessment questionnaire to identify po-
tential social and environmental responsibil-
ity performance risks. HP reviews the results
of the self-assessments and provides feed-
back to suppliers. Suppliers then create and
implement an improvement plan, if required.
In addition to helping HP evaluate risk, self-
assessments have been shown to help HP
suppliers become more familiar with HP’s
expectations of what it means to conform to
HP’s EICC Code of Conduct. HP uses three
types of monitoring to further understand
and influence supplier SER performance:
1) Audits: Annual audits are performed against
HP’s EICC Code of Conduct and follow-up
audits are conducted when nonconformances
are found. Suppliers are also encouraged to
commission independent audits.
2) Assessments: Targeted assessments are
conducted to supplement HP’s comprehensive
audits, focusing on specific risk areas
including:
• Vulnerable workers, such as student,
dispatch and foreign migrant workers
• Health and safety, including fire safety and
emergency preparedness
• Supplier SER management system maturity
• Supplier environmental performance.
3) KPI program: Final assembly suppliers are
required to provide data on working hours,
student workers, core labor rights, critical
health and safety issues and greenhouse gas
emissions. Suppliers track data on a weekly
basis and submit monthly. Such frequent
monitoring helps HP to quickly identify and
correct problems.
Audits
Traditionally, audits have been used as on-site
evaluations of supplier performance against
a company’s policies and expectations. They
can include management systems assessments,
which gather information on the strength of
suppliers’ sustainability systems to manage
minimum requirements. Auditing is mainly
used for compliance purposes, to measure
and then address labor standards within sup-
ply chains. In order to enforce their codes of
conduct, companies have developed their own
‘monitoring’ mechanisms. There are several
audit protocols in place in certain industries
that can be leveraged. For example, the Global
Social Compliance Programme has gathered
audit process best practices in a set of refer-
ence tools that companies can adopt or can
use as a benchmark for their own system.
Effective and appropriate auditing can
meet a series of needs, including:
1. As part of the due diligence process, when
screening new or potential suppliers to
identify whether they meet the buying
company’s minimum standards as a basis
for approving or rejecting a new supplier.
2. Establishing baseline information on
working social, ethical and environmental
conditions in an individual supplier and in
the broader supply base.
3. Establishing a starting point for discussion
with suppliers about current sustainability
issues and necessary and appropriate cor-
rective actions.
4. As a proactive tool to drive continuous
improvement at a supplier that a company
has a long-term business relationship with.
5. Monitoring progress over time – regular
and consistent audits are a way of checking
whether improvements in performance are
being made or have been made over time
at scale across large supply chains.
Audits can be a useful tool for identifying
problems but, if used alone, do not neces-
sarily create the change necessary to ensure
sustainable improvement to practices. Leading
companies are increasingly focusing on a
two-track process, integrating the important
diagnostic aspect of audit where due diligence
of supplier performance is needed, with a
growing emphasis on programmes that move
beyond monitoring for more strategic suppli-

ers, enabling and supporting change at local
level, with one process informing the other
on an ongoing basis.
Audits can be conducted by the company
staff, a secondary party, which is a body with
a trading relationship with the site, such as
a retailer, brand, vendor or agent, or by an
independent third-party, such as an auditing
firm, an NGO, a trade union, or even a group
of these stakeholders. The questions of when,
why and how to engage external auditors
should be driven by the overall supply chain
risk management objectives. Both external and
internal auditors offer distinct advantages and
there is no standard “right way.” In fact, best
practice is to use a combination of both.
In deciding whether to rely on external
auditors or to develop and maintain internal
capacity for auditing, consider what type and
level of expertise is needed to assess perfor-
mance against company policies, such as
environment or health and safety expertise
and regional presence and capacity. Indi-
vidual qualifications are also important and
have an impact on the integrity and quality
of the audit results. Some companies opt
to hire specialized third-party auditors to
conduct focused thematic assessments. Com-
panies with substantial audit requirements
should carefully consider the cost, feasibility
and effectiveness of internal versus external
investments. Finally, companies should be
mindful of how suppliers will perceive and be
affected by audits and how critical they are to
the business.
In the event that audits are conducted
by an external party, the company should
receive a detailed report of the audit find-
ings in order to make an informed decision
concerning one of its suppliers and discuss an
appropriate corrective action plan.
Effective audits are driven by a variety of
factors including:
• Preparation and knowledge of factory,
country, sector, workers and community
prior to visit
• Maintaining independence from manage-
ment for credibility with workers
• Selecting a random sample of workers – in-
cluding all types of workers, including any
vulnerable groups such as young workers,
contract, migrant and female workers –
during all parts of assessments
• The experience and auditing expertise
41
components
of an audit9
Planning
Development of a strategy, including time-
line, objectives, nature and extent of the
audit that will be performed.
Preparation
Gathering information on potential issues
affecting workers and the surrounding
community.
Opening Meeting
Presentation of the purpose of the audit
to supplier’s management and workers
and planning of the audit schedule.
Facility Tour
Visual inspection of facility to identify
obvious noncompliances.
Records Review
Checking employee files, timecards,
health and safety records, etc.
Management Interview
Discussion of management systems,
wages paid, working hours, etc.
Workers Interviews
With a representative sample of employ-
ees regarding working conditions.
Additional Interviews (optional)
As a growing practice in some sectors,
stakeholder interviews with trade unions
and NGOs may also be conducted in order
to improve the quality of information.
Pre-closing meeting
Audit team reviews the elements gathered
during the audit.
Closing meeting and summary of
findings
Communicate the findings to the supplier
management.
Reporting
Report the findings to the company.
9
This list of components is based on Sedex Members Ethical Trade Audit (SMETA)
Best Practice Guidance, (2012), available at http://www.sedexglobal.com/wp-content/
uploads/2012/07/SMETA-Best-Practice-Guidance-4-Pillar-4_0-L.pdf.
42 Supply Chain Sustainability

of the auditor, including language and L’Oréal, a French cosmetics company,

cultural skills and knowledge of local issues
and industry specific challenges
• The extent to which an audit incorporates
an assessment of both systems for managing
performance as well as levels of perfor-
mance, as well as an analysis of root causes
of noncompliance.
• Holding informal conversations with work-
ers during times and in locations where
they are comfortable and secure
• Gathering enough information to ensure
understanding of factory conditions
• Documenting information and assessment
of workers’ credibility
• Validating information from workers with
other sources
• Always being aware of the need to protect
workers’ confidentiality and safety
informs suppliers of the company’s expecta-
tions through an “Ethical Commitment Let-
ter”. This letter requires suppliers to comply
with the ILO’s Core Conventions as well as
local labour laws. Certain environmental
standards relating to hazardous emissions
and contaminations are also included. All
subcontractors are audited on these require-
ments wherever they operate, as are all
suppliers of raw materials, packaging and
all promotional-items suppliers located in
“at risk” countries. Other suppliers are au-
dited on a case-by-case basis, as necessary.
Audits are based on SA8000 standard and
carried out by a specialized, independent
third party in the local language. 834 social
audits were carried out in 2014, amounting
to a total of 6,129 since 2006.

Over the past decade, Nike, a footwear and

On the Horizon: apparel company, launched a Manufacturing
Index to evaluate new and continuing sup-
Beyond the Workplace - pliers on four equally weighted criteria: cost,
quality, on-time delivery and sustainability.
Indirect Impacts on Human Rights - To measure sustainability, Nike developed a
Sustainable Manufacturing and Sourcing In-
The scope of the Guiding Principles on Business and Human Rights
dex (SMSI) that scores on compliance as well
covers human rights impacts caused both directly and indirectly by
as continuous improvement in energy, water,
a company’s own activities, and, therefore, organizations should
waste, health & safety, working conditions,
be aware of potential and actual impacts within their own organi-
human resources management practices and
zations and in the communities in which they operate. Companies
lean manufacturing adoption. Nike has com-
should initially consider focusing on stakeholder engagement on hu-
mitted to source 100 percent from contract
man rights impacts rather than auditing within local communities.
factories rated bronze or better on the SMSI,
reflecting a standard that adheres to the com-
pany’s Code of Conduct and Code Leadership
SMETA – Social audits such as SMETA – Sedex Members Ethical
Standards.
Trade Audit, an open source methodology derived from a compilation
of auditing best practices, include a focus on labour rights (human
rights in the workplace), management systems and guidance around
grievance mechanisms and freedom of association. SMETA is the most
commonly used audit methodology worldwide and is a comprehensive
methodology used by many companies to assess a supplier’s current
practices including areas for improvement, but also capturing current
systems and processes as well as areas where the site goes above and
beyond (good examples).
This audit methodology can be used as an assessment method for
first-party audits, second-party audits as well as third-party audits.
Additionally, it gives guidance on the opportunity for an optional
perimeter survey and has a section on community benefits, highlight-
ing any positive impacts, which can provide additional information to
understand local context and support insights into specific impacts on
local communities.
 43

Supplementing practices
As due diligence processes evolve, companies are interested in gathering a wider series
of indicators to inform the impact of their programmes. The following tools are some-
times implemented into the traditional audit process:

1. Impact Assessment – impact assessment can include a number of Key Performance

Indicators which give an overview of the impact of the company’s sustainability pro-
gramme. These often include worker turnover, number of accidents, etc.
2. Worker surveys – these tools allow the entire workforce to provide feedback on their
experience of the working environment. Survey results are evaluated by a third-party
provider and then anonymous results are presented back to the factory manage-
ment with areas and recommendations for improvement. These tools allow a larger
part of the workforce to be included in the assessment of the site and are an in-depth
(however resource-heavy) assessment which can be very effective in finding areas for
improvement and engaging the entire workforce.
3. Sustainability Ratings Systems – rating systems provide a detailed score or scores
on multiple areas allowing both recognition of good and excellent performance and the
setting of meaningful goals that suppliers can strive for.
4. Operational Grievance Mechanisms. Both multinationals and SMEs are dealing
with the challenging task of providing effective and adequate access to remedy for
their workers and stakeholders. The third pillar of the Guiding Principles on Business
and Human Rights states that companies should establish effective operational-level
grievance mechanisms to handle complaints by stakeholders and workers for sup-
pliers’ adverse impact on people, environment and governance. Suppliers should be
encouraged and, where appropriate, required to establish such mechanisms, and the
company should have access to information about what grievances are submitted and
how they are being resolved. Operational-level grievance mechanisms should serve
as an avenue for resolving grievances at the earliest possible opportunity, but also
as a feedback mechanism for suppliers to understand their impacts on stakehold-
ers. Operational-level grievance mechanisms should comply with the effectiveness
criteria outlined in the Guiding Principles on Business and Human Rights (Principle 31).
Companies and suppliers may also have the opportunity to access formal grievance
mechanisms adopted by industry associations to address sustainability issues arising
in a specific sector and geographical area.

The Mexican labour advocacy organization Centre for Reflection and

Action on Labour Issues (CEREAL) and the National Chamber of the Elec-
tronic, Telecommunications and Information Technologies Industry
(CANIETI), decided to work together to address highly contentious relations between
workers and electronics manufacturers in Mexico. The parties have made progress
in mapping and resolving labour grievances and in working to prevent new ones.
Since 2007, the established Grievance Escalation Mechanism has helped to solve an
average of 800-1000 cases per year and the parties have estimated a decline in the
occurrence of cases related to accidents or discrimination. Looking ahead, CEREAL
and CANIETI are planning to focus on issues related to living wages, freedom of as-
sociation and collective bargaining.
44 Supply Chain Sustainability

Remediation and • Defining a roadmap for gradually increasing

Capability Building
Supply chain sustainability is an evolving
vision, which means that it is critical to have
an approach that defines and incentivizes
continuous improvement. This approach
includes both remediation of instances of
non-compliance as well as investment in sup-
pliers’ management capabilities.
Remediation can include a number of
activities:
• Working with suppliers to create a correc-
tive action plan for achieving compliance in
a clearly defined and reasonable time frame.
• Encouraging improvements through regular
communications with non-compliant
suppliers.
standards and expectations.
• Internal analysis of how company processes
may drive supplier behaviours and whether
corrective actions are needed internally to
address adverse impacts.
It is important that remediation requirements
are communicated very clearly to suppliers
and that there are established timelines and
consequences for not meeting them and/
or continuing performance. Remediation
requirements should also be feasible, realis-
tic and agreed with the supplier. If adverse
impacts are not remedied in spite of efforts to
address the issues and repeated notifications,
a company may ultimately need to terminate
the supplier relationship. Companies should
identify zero-tolerance issues and explain
their selection and consequences to suppliers

Supporting Suppliers’ Workers’ Empowerment to

Assure Quality Working Conditions10
One of the biggest challenges for companies is to verify whether the rights of workers in their supply
chain are respected and supported. By establishing programmes that support freedom of associa-
tion, companies can empower workers to advocate directly for improvement of their conditions.
These programmes not only ensure that the human rights of the workers are respected but create a
better working environment that boosts productivity and minimizes risks of operational disruption.
Recommended good practices to support workers in the supply chain include:
• Implement a support mechanism for workers to communicate concerns and assert human rights,
such as operational-level grievance mechanisms, audits, worker-inclusive sustainability committee,
etc.
• Conduct human rights-focused trainings for suppliers’ workers
• Partner with NGOs or other stakeholders to implement worker empowerment initiatives

Better Work is a unique partnership between the International Labour Organization and the
International Finance Corporation which aims to realize the rights of garment workers and for
factories who uphold labour laws and standards to be profitable and productive. The organiza-
tion's strategy involves working with major industry stakeholders and smaller factories at a global
and local level. Better Work supports the establishment of strong relations between managers
and workers who can then take ownership and responsibility for continuously improving working
conditions and eventually competitiveness at the factory. Among its achievements, Better Work has
ensured that migrant workers in Jordan were covered by the same protection and benefits as their
peers, including the right to join a trade union. In 2015, the programme has reached more than one
million workers and is present in factories across Bangladesh, Cambodia, Haiti, Indonesia, Jordan,
Lesotho, Nicaragua and Vietnam.

For more information, read Supporting Worker Empowerment - Including Support for Workers’ Assertion of their Human Rights - in the Supply Chain, the Good Practice
10 

Note endorsed by the UN Global Compact Human Rights Working Group, available at https://www.unglobalcompact.org/docs/issues_doc/human_rights/Human_Rights_
Working_Group/WorkerEmpowerment_GPN.pdf.
 45

“A sustainable supply
chain benefits our
business by mitigating
risks associated with
producing and delivering
our products and services
to our customers. It also
creates opportunities to
develop closer ties with
suppliers in the long-term
interest of the company.”
– Erik Engstrom, Chief Executive Officer, RELX Group
46 Supply Chain Sustainability
in advance. Terminating the business rela-
tionship should be considered as a last resort,
and companies should take into account cred-
ible assessments of potential adverse impacts
of doing so.
If a supplier relationship is critical to a
company’s operations, either because of the
essential service or product that it provides or
because of the lack of reasonable alternative
sources, the company should consider the
severity of the impact. The more severe the
impact, the more quickly it will need to see
a change before deciding whether to termi-
nate the relationship. If the company decides
to remain in the relationship, it should be
prepared to demonstrate ongoing efforts at
addressing the issue and to accept the poten-
tial reputational, financial and legal conse-
quences of maintaining the relationship. The
tools described in this chapter can be used to
increase leverage on these critical suppliers.
Some suppliers located in high-risk
countries may be challenged by an external
environment that reinforces a behavior that
is non-compliant with the prescriptions of
the code of conduct. In this case, it is recom-
mended to connect the supplier with the
Global Compact Network within its coun-
try or other industry associations that can
provide useful resources and a platform to
engage in dialogue with peers and other
stakeholders. Companies may also want to
consider intensifying their engagement with
the supplier to build a trusting relationship
while working towards remediation.
Opportunities in
Supplier Capability Building
Integrating learning and Providing supplier or
capability building into worker trainings
auditing process on major areas of
non-compliance
supplier
capability
building
Providing tools Creating or
that suppliers supporting a
can access and learning network
use independently of suppliers
De Beers, a diamond mining company,
launched its bespoke Best Practice Princi-
ples (BPP) Assurance Programme to address
social, employment, business, health and
safety and environment issues throughout
the diamond pipeline. De Beers’ customers
and their significant contractors, who range
from diamond cutters and polishers to jewel-
lery manufacturers to retailers, must comply
with the requirements of these Principles.
Where an infringement against the require-
ments is raised, the client or contractor is
required to submit Corrective Action Plans
(CAPs) to address the issue. Evidence is
submitted online or the third-party auditor
will re-visit the site to ensure that CAPs have
been successfully implemented to close off
any issues raised. In the event of any mate-
rial or repeated transgressions of the BPPs,
De Beers has reserved the ability to termi-
nate its supply contract with a customer.
Capability Building
Remediation and monitoring efforts have
proven to be most successful in combination
with efforts to build suppliers’ management
capabilities. Capability building includes a
variety of efforts, from training for supplier
personnel to worker hotlines and resource
networks. For example, through a combina-
tion of practical workshops, training and
in-factory consultations, the International
Labour Organization’s (ILO) Factory Improve-
ment Programme (FIP) helps factories increase
competitiveness, improve working conditions,
and strengthen collaboration and communica-
tions between managers and workers.
In order to address the issue of a fair living
wage in the textile industry, H&M, a Swed-
ish multinational retail-clothing company,
has developed the Fair Living Wage Road-
map, using a holistic approach that covers
H&M, factory owners, factory employees
and governments. One of the goals is to
support factory owners to develop pay
structures that enable a fair living wage and
train their employees into a skilled work-
force that can negotiate and annually review
their wages. In parallel, the company
reviews how to improve its own purchas-
ing practices to ensure they cover the true
cost of labor, and encourages governments
to set a mechanism to annually increase
 47

minimum wage levels. H&M aims to scale female workers. HP has brought health
up pay structures to cover certain strategic awareness programs using the HERproject
supplier factories by 2018 and affect around methodology to 27 supplier sites across
850,000 workers. China, Malaysia, Thailand and Mexico since
the programme’s inception in 2007, reach-
ing over 55,000 female migrant workers and
While some companies restrict their engage-
empowering them to take ownership of their
ment to monitoring and remediation, there
health.
are limits to what these processes alone can
• Occupational health and safety (OHS)
achieve. Monitoring is not always the most
training. In 2014, HP partnered with the
effective tool for identifying and dealing with
International Commission on Occupational
the root causes of issues. A growing number
Health (ICOH) and Hong Kong University
of leading companies in supply chain sustain-
to train management from 15 suppliers on
ability are shifting from a pass/fail compliance-
worker stress prevention, mental health
based approach to build supplier ownership
awareness, combustible dust prevention
through the development of management
and Participatory Occupational Safety and
systems. A deeper engagement, based on
Health Intervention (POSHI). POSHI is an
capability building and strategic partnerships,
on-site program that engages workers and
creates an open channel of communication
management in the process of identifying
with suppliers to better understand the issues
and solving OHS issues. Program partici-
they are facing and allow them to incorporate
pants reported that the training enhanced
sustainability into strategic planning while
worker/manager communication.
demonstrating continuous improvement on
their sustainability performance.
CEMEX, a Mexican building materials
company, launched its Supplier Sustain-
Below are some examples of how companies
ability Programme to extend the company’s
have taken steps to enable supplier owner-
commitments, practices and beliefs to their
ship through the development of sustainabil-
suppliers and foster a sustainable, reliable
ity management systems:
network. Since the Supplier Sustainability
Programme was created in 2010, more than
• incorporate evaluation of management sys-
2,100 suppliers in 24 countries have been in-
tems into audit protocols to raise awareness
vited to participate. The programme consists
• provide training and consulting for suppliers
of four key phases:
on sustainability management system design
•• Surveying suppliers against the company’s
• adopt improvement ladders which empha-
sustainability and financial standards
size a continuous improvement approach to
•• Enacting a communication campaign based
sustainability management systems develop-
on the survey results
ment with increasing incentives and reduced
•• Reinforcing awareness of specific policies
auditing.
that incorporate aspects of sustainability
including human rights, labor and antitrust, as
HP believes that investing in the skills and
well as the supplier Code of Conduct, based
awareness of workers and supplier manage-
on CEMEX’s Code of Ethics and the UN Global
ment through capability building is criti-
Compact Ten Principles
cal to achieving lasting solutions to labor
•• Preparing a scorecard to track and incentiv-
issues. HP invests in worker development
and empowers workers to improve social ize suppliers with a record of strong sustain-
and environmental performance at their ability performance.
sites by helping them to develop a broad
skillset. Since the start of the program, HP
has directly reached over 533,200 work- Nestlé India, a food and beverage company,
ers and managers in China, South America established a dedicated supplier develop-
and Southeast Asia. Examples of capability ment department in 2005 to promote sustain-
building programs include: able production and processing of agriculture
• Health education through HERproject. commodities like coffee and chicory, achieve
Business for Social Responsibility’s (BSR) compliance to local regulatory laws, cost
Health Enables Returns (HER) Project savings by localisation of key imports and to
provides basic personal health training to create a wider, more flexible supply base. The
48 Supply Chain Sustainability
Build a More
Inclusive Supply Chain
Inclusive sourcing presents an important opportunity for com-
panies to support human rights and increase economic develop-
ment by offering economically disadvantaged groups an equal
opportunity to compete for business, enhancing their income
and improving their business skills. It also makes business
sense by broadening the vendor pool with loyal and flexible
suppliers, enhancing competitive advantage and providing in-
novation. When engaging with suppliers and sub-tier suppliers,
companies should identify and consider opportunities to work
with businesses owned by certain underrepresented stake-
holder groups, such as women, minorities, indigenous people,
elderly and disabled workers to promote a more inclusive sup-
ply chain. Some companies do so by partnering with associa-
tions or organizations that represent and promote businesses
run by these groups.
Cisco, a U.S.-based IT company, established the Diversity Busi-
ness Practices (DBP) Program to increase inclusion and diversity
among its global suppliers. The DBP team identifies potential
diversity and inclusion supplier candidates and facilitates relation-
ships between them and Cisco representatives. The DBP Program
provides equal access to businesses owned by minorities, women,
service disabled and veterans, as well as to companies in histori-
cally underutilized business zones (HUB zones). Activities within
the DBP program include mentoring sessions, a business expo
and workshops. It also offers corporate memberships in and col-
laborations with many domestic and international organizations
focusing on minorities and encouraging diversity, such as WECon-
nect International, SupplyNation and the Canadian Aboriginal and
Minority Supplier Council.
In 2014-15, as part of its commitment to empowering and invest-
ing in women entrepreneurs, Boyner Group, Turkey’s largest
fashion retailer, launched the Boyner Group Women Suppliers
Academy in partnership with the International Finance Corpora-
tion (IFC). This project aims to raise productivity, performance and
economic opportunities for women-led businesses, which com-
pose 18% of Boyner Group’s supplier base. This is to be achieved
through a 12 week training programme for owners and manag-
ers of a first pilot cohort of 25 women-led businesses in Boyner
Group’s supply chain. The Academy will then train a second and
third cohort, offering IFC Business Edge™ training modules, which
have been adapted to specifically address the needs of women
entrepreneurs. Through these efforts, the Academy plans to
strengthen the overall ecosystem for women suppliers in Boyner
Group’s supply chain, focusing on their access to skills, markets
and finance. To that end, the Academy has partnered with key
organizations supporting women’s entrepreneurship in Turkey.
company invests in working with suppliers
through training programmes, knowledge
sharing and by providing technical assistance
to suppliers to close food safety and quality
gaps and improve suppliers’ management
systems and products. As a result of these
supplier development efforts, Nestlé India in
the last 5 years has increased local sourc-
ing of materials from 70% to 92% (by value),
reduced single supplier situations from 26%
to 14%, developed more than 50 new Indian
suppliers able to meet Nestlé’s specifications
and saved $US 10 Million. With these efforts
many of the Indian suppliers have become
Best Cost Origin Source for supplies to other
countries. This initiative has also been repli-
cated in China, Bangladesh, Brazil, Indone-
sia, Iran, Malaysia, Russia and South Africa.
Engaging with Sub-Tier Suppliers
As described above, companies sometimes find
that they have significant risk in the suppliers
who are one or more links away in the supply
chain. For example, food and agricultural
companies have faced significant challenges
with child labour on farms which they rarely
buy from directly. The electronics industry,
as well as others, are struggling with mining
in conflict zones for the minerals that go into
their products.
Engaging with sub-tier suppliers may have
additional complications beyond those de-
scribed above, including lack of transparency
in the supply chain and less leverage over the
sub-tier supplier. To overcome these obstacles,
companies are pursuing a number of strategies
including:
• Participation in industry collaborations:
Collaborating with other companies can in-
crease leverage collectively. It can also help
companies to share the costs and resources
required to engage with these suppliers.
• Engagement in public policy: Many com-
panies also overcome their lack of leverage
by seeking legal and regulatory redress of
sustainability issues, working with local
governments or their home state either alone
or in collaboration with other businesses.
• Supply chain optimization: Individual
companies can also take steps to shorten
their supply chains by grouping smaller
suppliers into cooperatives and reducing
middlemen. This can also increase the rev-
enue that small suppliers earn.
 49

When, through appropriate risk assessment,
companies identify specific sub-tier suppli-
ers who are responsible for adverse impacts
on people, environment or governance, they
should take appropriate steps to engage with
the supplier and address the issue, using the
tools described in this chapter. If this ap-
proach is unsuccessful, then the company
should take steps to terminate the relation-
ship, either directly or via intermediaries, or,
if the supplier is critical to the company’s
operations, be able to demonstrate efforts
made in addressing the issue in the same
manner as described in the previous sections
of this chapter.
In 2012, Restaurantes Toks, a Mexican food
and beverage company, engaged in a pilot
project with their coffee producers in Talquian,
Chiapas by providing training, capacity build-
ing and equipment to the farmers. By building
a relationship with and investing in coffee
farmers in this community, the company
ensured an increase in productivity, better
product quality, tackled the main sustain-
ability issues, including use of child labour,
and improved worker conditions, resulting in
higher salaries for the farmers and a return on
investment for the company that nearly tripled
its initial investment.
As part of its Cocoa Plan, Nestlé aims
to enable cocoa farmers to run profit-
able farms, improve social conditions of
cocoa-growing communities and ensure a
long term supply of sustainable and good
quality cocoa. Child labour on cocoa farms,
especially in Côte d’Ivoire and Ghana, is a
particular challenge for the whole industry.
In 2011, Nestlé decided to partner with the
Fair Labor Association (FLA) to address this
issue. As part of the implementation of its
Responsible Sourcing Action Plan, Nestlé
started rolling out a Child Labour Monitoring
and Remediation System (CLMRS) to help
identify specific instances of child labour
(monitoring) and enable the company to
take appropriate measures to address them
(remediation). Together with the Internal
Cocoa Initiative (ICI), Nestlé’s implement-
ing partner for this project, the company
is seeking to create an environment where
child labour is recognized as a serious and
complex issue that can only be addressed
by leveraging each tier of the cocoa supply
chain (tier-1 suppliers, farmer cooperatives,
farmers, etc.) and through a comprehensive
engagement of governments, NGOs and the
local communities themselves.

Encouraging suppliers to join the

Global Compact and Local Networks
Companies should encourage their
SME suppliers to join and participate
actively in the Global Compact and
its Local Networks around the world.
Local Networks have a lot of useful
resources and strategies for imple-
menting sustainability and the Global
Compact’s Ten Principles. They create
opportunities for multi-stakeholder
engagement and collective action, and
deepen the learning experience of all
participants through activities and
events to promote action in support
of UN goals. Companies can also save
costs on educating their suppliers on
sustainability by promoting it collec-
tively with other companies, for exam-
ple through the Local Networks. Some
companies have asked suppliers to
join the Global Compact as a condition
of being their supplier. An important
next step would be to check that the
supplier remains an active participant
by submitting their annual communica-
tion on progress (COP) to meet Global
Compact requirements. The Global
Compact offers a basic template for
submitting the COP, which SMEs with
limited resources have benefitted from.
Since 2005, Schneider Electric,
a French electric components and
equipment company, has asked its sup-
pliers and subcontractors to join the
Global Compact. Support of the Global
Compact is one of the criteria for
becoming one of Schneider Electric’s
main suppliers. Schneider Electric has
established a goal to source 60% of the
company’s purchases from suppliers
who support the Global Compact by
the end of 2010. By the end of 2009,
33% of the company’s purchases
were made with suppliers who had
signed the Global Compact, and 1,153
of Schneider Electric’s suppliers had
signed the Global Compact. The com-
pany’s purchasing teams were trained
on the Global Compact Principles to
better engage with suppliers on these
issues. Moreover, it closely monitored
which suppliers are in danger of being
delisted from the Global Compact for
failure to Communicate on Progress.
50 Supply Chain Sustainability

6. Determining Roles & Responsibilities
Supply chain sustainability strategies need to
be integrated and closely coordinated with
business strategies that affect supply chains.
Internal Alignment
One of the most persistent challenges to sup-
ply chain sustainability is a tension in many
companies between supply chain management
professionals’ commercial objectives and their
sustainability objectives and commitment to
the UN Global Compact. This tension is mani-
fested in different objectives for sustainability
and purchasing staff. Companies can poten-
tially contribute directly to sustainability issues
in their supply chain if their own business
policies and procedures are not aligned with
their sustainability requirements. Responsibil-
ity for the successful compliance with the sup-
ply chain programme lies with the company’s
internal functions as much as with suppliers.
A lack of internal alignment can have
negative impacts on suppliers’ supply chain
sustainability performance, as they may be
incentivized to cut corners to comply with the
requests from the company. For example, last
minute quantity changes can create signifi-
cant time pressures that erode working condi-
tions if suppliers are forced to increase worker
overtime schedules to keep to compressed
timetables.
The Elements of Internal Responsibility for Supply
Chain Sustainability
Executive Leadership:
Commitment, Oversight and Support
Supply Chain Management
Professionals:
Implementation
51
Successful implementation of supply chain
sustainability programmes requires three levels
of internal responsibility as illustrated in the
figure below.
Governance and Oversight:
Executive Leadership
and the Board of Directors
Executive and Board commitment, oversight
and support are crucial in setting the correct
tone and direction for supply chain sustain-
ability. Executives should clearly articulate the
company’s vision and approach to supply chain
sustainability with concrete milestones and
metrics. Written and oral communication from
executives will help align business managers’
and supply chain management professionals’
priorities with these milestones and emphasize
the importance of sustainability as a way of
doing business. Executives and the Board of
Directors should also regularly review prog-
ress against supply chain sustainability goals.
This senior level oversight will help to hold
people throughout the company accountable.
Executives should also provide regular internal
updates around the company’s sustainability
priorities, successes and challenges.
Executives should also support supply
chain management professionals’ com-
munications with suppliers as appropriate.
Business Managers:
Cross-Functional Coordination
52 Supply Chain Sustainability

Executives at suppliers will appreciate the Cross-functional Coordination

peer-to-peer interaction, and involvement
of the company’s senior leaders will help to
demonstrate the seriousness with which sup-
ply chain sustainability is undertaken at the
company. As discussed in Chapter 3, execu-
tives can help communicate about the code of
conduct. They can also participate in supplier
meetings
as an incentive for strong performance (see
Chapter 5).11
among Business Managers
Competing requirements from different func-
tions internally can negatively impact supply
chain sustainability. A wide variety of func-
tions needs to work together to align their
business requirements with the supply chain
sustainability objectives that the company has
committed to. They should therefore ensure
that the company’s requests meet realistic
expectations that encourage suppliers to
maintain the required level of performance
on sustainability.

HP’s Supply Chain Responsibility governance system clarifies reporting and responsibility across
relevant HP businesses and functions. All HP businesses sponsor and support the Supply Chain
Responsibility program through the Supply Chain Board, which meets monthly and reports
directly to the HP Executive Council.

11
See: A New Agenda for the Board of Directors: Adoption and Oversight of Corporate Sustainability, which contains inspiration and recommendations for
Boards of Directors on adoption and oversight of corporate sustainability (https://www.unglobalcompact.org/library/303).
 53

“Nestlé believes that it is only by creating

value for society and shareholders at
the same time that we can have long
term business success. We call this
Creating Shared Value. After analysing
our value chain we have determined that
the areas of greatest potential for joint
value optimization with society are
water, rural development and nutrition.
By working closely with our supply base
of 540,000 farmers, we can help them
be more productive and emerge from
poverty. In return we receive a higher
quality end product which benefits the
consumer and ultimately our business.
We commend this approach to other
companies and hope this new guide
will help spread best practice.”
– Peter Brabeck–Letmathe, Chairman of the Board, Nestlé SA
54 Supply Chain Sustainability

In addition to supply chain management
professionals, product design, business devel-
opment, legal, human resources/diversity and
inclusion, finance risk and strategy, logistics,
marketing and sales can all impact supply
chain sustainability. Companies should con-
sider how to bring together cross-functional
representatives, as illustrated in the figure
below, to get a clear picture of impacts and
where they arise in company decision making.
It is important that individual roles and
responsibilities within the business are speci-
fied so that individuals can assume respon-
sibility for implementing and meeting the
vision and milestones set out by executives.
These objectives should be backed by incen-
tives and consequences.
Sustainable supply chain personnel should
also provide input to strategic planning pro-
cesses in functions throughout the company.
To build sustainability into decision making
processes, sustainability expertise should be
embedded in, or available to, every team with
an impact on the supply chain.
Grupo Los Grobo, an agribusiness company
with operations throughout South America,
has established a supply chain committee led
by the company’s CEO and coordinated by
the manager of supplies & outsourcing. Other
participants include designated representa-
tives of each of the areas of the company that
have a strategic relationship with suppliers
(outsourcing for commodity production ser-
vices, logistics, agricultural inputs, etc.). This
committee is responsible for establishing and
setting objectives and goals through the design
of a strategic plan. Objectives are checked and,
if necessary, set every year. The results are
analyzed and a new strategic plan is formulat-
ed. One of the latest things to be incorporated
in strategic planning is the use of the ONUDI
“supplier development platform”. This commit-
tee interacts with more than 5,000 small and
medium sized supply companies.

Integrating Sustainability across Functions 12

Finance Finance

Human Human
Resources Resources

Legal Legal

Supply Supply
Management Management

Design
Design

development development

Production Production

logistics logistics

marketing marketing
Su
s

sales sales
ta
in
ab
ili
ty

Sustainability

Disconnected structure integrated structure

12
From BSR.

The General Counsel of Barrick Gold, a global
mining company based in Canada, was the
primary author of the company’s human rights
policy, developed in consultation with a variety
of internal stakeholders and external experts
including leaders in the supply chain and sus-
tainability groups. Following the development of
the policy, legal counsel has assisted colleagues
in the supply chain function to understand how
human rights fits within supply chain poli-
cies, processes and activities. This is part of a
comprehensive effort to ensure that each group
within the company understands its actual and
potential human rights impact. As a result, sup-
ply chain staff revised its Supplier Code of Eth-
ics to include a greater focus on human rights
and the overall Ten Principles of the UN Global
Compact. This culminated in human rights due
diligence becoming part of the supply chain’s
vendor onboarding standard and human rights
audit protocols being used to evaluate potential
suppliers.
Implementation by Supply Chain
Management Professionals
Depending on the structure of the company,
the group of individuals with the most direct
contact with suppliers, referred to throughout
this guide as supply chain management profes-
sionals, in most cases will have the most re-
sponsibility for communicating sustainability
expectations to suppliers and holding suppliers
accountable for meeting the company’s expec-
tations. In some cases a dedicated sustainable
procurement manager directly reporting to the
Chief Procurement Officer can be allocated.
Sustainability performance objectives can
also be embedded into buyers’ performance
objectives. Capacity building of procurement
staff can be integrated into existing training
programmes.
Supply chain management professionals
have four primary levers for moving the
needle on supply chain sustainability:
1. Selection of new suppliers with relatively
high sustainability capabilities and practices
2. Working with existing suppliers to set and
raise expectations and ensure continuous
improvement in performance
3. Incorporate sustainability considerations
when consolidating purchases and winding
down product lines
4. Creation and communication of incentive
processes to encourage suppliers to proac-
tively own their sustainability programme.
55
Selecting Suppliers Relevance of
During the due diligence process of selecting Sustainability to
suppliers, companies should include social and Supply Management
environmental management and performance Professionals
criteria alongside commercial criteria in the
process. This will allow supply chain manage-
“Supply management
ment professionals to look at the full picture
when evaluating suppliers, and in some cases, decisions have a direct
avoid working with suppliers that bring more impact on business re-
sustainability risk to the company. A standard sults and sustainability.
practice is to review responses to a supplier
Therefore, supply man-
self-assessment questionnaire (described more
fully in Chapter 5), which asks for basic infor- agement professionals
mation about policies and practices, and can be have a responsibility to
used in a risk assessment to prioritize suppli-
raise the issue of the
ers for follow up. Audits can also be used as a
development of a sus-
due diligence mechanism to screen new and
potential suppliers. tainability programme
Environmental and social criteria can also within the organization
be integrated in a request for proposal (RfP)
with relevant stake-
and ask potential suppliers to provide related
information during the bidding process. A RfP holders, including the
can thus link social and environmental criteria establishment of a
along with quality and financial performance sustainability strategy
into a competitive offer.
and various enterprise
WORKING WITH EXISTING SUPPLIERS initiatives embedded
ON CONTINUOUS IMPROVEMENT throughout the sup-
Existing suppliers will also need to comply ply chain and a formal
with the company’s sustainability expecta-
written policy between
tions. Depending on the current state of
sustainability management systems at any the organization and its
given supplier, it may require investments supplier companies.”
in people and systems that may take time to
translate into improved performance. Supply — Institute for Supply
chain management professionals should take a Management
continuous improvement approach to sustain-
ability with existing suppliers based on:
• Mutual transparency. Companies should
expect that suppliers will openly and
honestly share information related to their
sustainability performance. In return,
companies should provide clear expectations
and guidance as well as advanced notice of
changing policies or practices to suppliers.
• Realistic timelines. Companies should care-
fully consider what their minimum require-
ments are, e.g. legal compliance, and what
is a realistic timeline for improvements that
go beyond the minimum requirements. In
identifying appropriate timelines, compa-
nies should take into account the severity
of identified risks – where risks are severe
or impacts may be irremediable (such as,
for example, permanent damage to land or
56 Supply Chain Sustainability
instances of child labour in the supply chain),
suppliers will typically need to demonstrate
that such risks are addressed more quickly.
Collaboration with peers or audit firms is also
important to communicate aligned timelines
and send a consistent message to suppliers.
• Continuous improvement. Companies can
work with suppliers toward management
excellence for sustainability and should define
excellence in this context. Companies can also
help suppliers develop management capacity
by providing access to resources.
• Partnership. Companies should commit to
enabling open lines of communication with
suppliers between decision makers of both
parties. Customers can work in partnership
with suppliers to clearly define roles and
responsibilities and to create and achieve
mutually agreeable goals.
Timberland, an American footwear company, has
changed the way it works with suppliers from a
compliance-based approach to a more collabora-
tive approach focused on workers. Instead of leav-
ing a list of violations for factory owners to resolve
and then checking back to verify improvements,
the company now works more closely with factory
management and their workers to understand the
root cause of workplace issues in factories. The
new approach puts the workers themselves at the
centre of the process. Workers and their repre-
sentatives are now invited to opening and closing
meetings of supplier assessments and workers
are interviewed in groups as part of the assess-
ment process. In addition, worker code of conduct
committees are established, trained and continu-
ously involved in upholding the code of conduct.
INTEGRATION SUPPORT
Companies can take many steps to support sup-
ply chain management professionals in integrat-
ing sustainability and overcoming the perceived
tension between sustainability and business driv-
ers. Many companies begin by providing advice
on sustainability issues such as human rights
and environmental impacts in a way that makes
clear links to other business factors, such as risk,
quality, cost, etc.
Companies are also experimenting with
supplier scorecards which present information
about suppliers’ sustainability performance
alongside their business performance to support
integrated decision making. Leading companies
are also placing sustainability personnel within
supply management to prevent mixed messages
to suppliers.
The Center for Sustainable Procurement
(CSP) is a BSR initiative focused on enabling
sourcing, procurement and purchasing profes-
sionals to make more sustainable procurement
decisions across industries and categories. The
CSP’s mission is to help buyers understand the
value of sustainability to procurement and build
buyer capabilities to make sustainable procure-
ment decisions. Established in 2012, the CSP
conducts research and works with companies to
develop resources, tools, methods and process-
es to integrate sustainability into the procure-
ment process.
Volkswagen Group, a German automaker, for-
mulated its “Sustainability in Supplier Relations”
programme in 2006 and has since gradually in-
troduced this approach into corporate structures
across the Group, as well as into production-relat-
ed purchasing processes. The concept of sustain-
ability in supplier relationships is comprised of
three main pillars aimed at minimizing and/or
preventing negative social, environmental and
financial impacts along the supply chain:
1) An early warning system that identifies and mini-
mizes risks along the supply chain.
2) Contractually mandated integration of the sus-
tainability standards in the procurement process.
3) Supplier monitoring and development.
As an integrated part of this programme, both
procurement staff and suppliers are offered
online and in-person trainings on sustainability
topics and suppliers are asked to fill out a self-
assessment questionnaire. Additionally, suppliers
can contact an email address when issues arise,
and an “ad-hoc-expert” from the related depart-
ment within Volkswagen will offer direct assis-
tance and coaching to meet the requirements.
Information is also made available to suppliers as
a standard step in the procurement process.
In 2014, Ford Motor Company trained 175 new
purchasing employees on Supply Chain Sustain-
ability fundamentals. The company additionally
provided training to the global Supplier Technical
Assistance (STA) team on the fundamentals of its
Human Rights and Working Conditions programme
as these personnel interact with supplier plants on
a regular basis. STA training reached almost 1,400
individuals globally and, by the end of 2015, Ford
plans to train the broader Purchasing community.
 57

“At Restaurantes Toks,

we have the commitment
not only to deliver
products and services
that fulfill and exceed our
customers’ expectations,
but to contribute in
the development of a
sustainable supply chain
for the benefit of our
business, our society
and our planet. Sharing
success is a must in the
process of assuring
long term sustainability
and growth.”
– Federico Bernaldo de Quiros, CEO, Restaurantes Toks
58 Supply Chain Sustainability

7. Industry Collaboration
and Multi-Stakeholder Partnerships
Industry collaboration and multi-stakeholder
partnerships are important tools for advanc-
ing the company’s supply chain sustainabil-
ity objectives, particularly for issues that are
too challenging and complex to tackle alone.
In addition, collaboration can increase the
impact and overall efficiency of supply chain
sustainability efforts by extending the com-
pany’s reach and leverage, pooling resources,
reducing duplication and avoiding conflict-
ing messages.
There are risks and opportunities to
industry collaboration and multi-stakeholder
partnerships that should be considered
early in the development of the company’s
programme.
The Context for
Industry Collaboration
Many leading companies have come to see col-
laboration as an important element of address-
ing the root causes of sustainability issues. In
addition, collaborative efforts represent a way
for smaller companies with fewer resources to
take action and contribute to further supply
chain sustainability. Two primary types of
industry collaboration have emerged:
1. Best Practice Sharing. These industry col-
laborations, which can be focused in one
industry or across sectors, focus on sharing
knowledge about approaches and tools
that companies have found to be successful
in their individual supply chain sustain-
ability programmes. These groups will
also sometimes create tools together that
reflect the direction of their programmes,
although typically participants to this type
of collaboration are not required to use the
tools or to meet any other standards for
participation.
2. Joint Standards and Implementation.
These collaborations are typically focused
within one sector and aim to create con-
sistency among companies’ expectations
and programmes. As described briefly in
Chapter 5, compliance based approaches
to supplier monitoring are frequently
characterized by inconsistency, duplica-
tion and inefficiency among companies.
59
For suppliers that work with multiple
customers with their own codes, each may
have its own unique approach for supplier
engagement and monitoring. This can cre-
ate a significant burden for suppliers that
can divert resources from compliance and
continuous improvement.
For this reason, many groups have come
together to create a shared code of conduct,
which participating companies may or may
not be required to adopt, and they work to
engage suppliers on the shared code together
through joint assessments and auditing. Many
of these groups also conduct joint capability
building for suppliers.
Gap Inc., an American clothing and acces-
sories retailer, has executed a large-scale
rollout of the Sustainable Apparel Coalition’s
Higg Index 2.0 at the third-party vendors
that make its branded apparel. Gap Inc. first
began working with a targeted group of sev-
en vendors (representing approximately 50
facilities) in India to benchmark water use
performance. The results quickly highlighted
those facilities using best water manage-
ment practices, which Gap Inc. then shared
anonymously with other participating facili-
ties. With this information, vendors and their
facilities are able to more clearly understand
their performance relative to competitors
and peers, and learn what measures other
facilities are taking or investing in to reduce
their environmental impact.
60 Supply Chain Sustainability
Opportunities and
Risks of Industry Collaboration
Industry collaboration can create significant
efficiencies for suppliers and companies, but
it also comes with some risks. The company
should consider both as to determine whether
and on what elements of the programme to
collaborate with other companies.
opportunities
In addition to the benefits that industry col-
laboration can create for suppliers discussed
above, the opportunities for companies are
significant:
• Leverage with Suppliers. Partnering
with peers on supply chain sustainability
can boost the company’s leverage with
direct as well as sub-tier suppliers. By col-
laborating with peers, its expectations and
engagement approaches are not only more
aligned, but the company’s voice to direct
and sub-tier suppliers will be much louder.
• Credibility with stakeholders. Participat-
ing in industry collaborations can be a
demonstration of the company’s aware-
ness of the challenges in supply chain
sustainability and can help boost cred-
ibility with external stakeholders. Indus-
try collaborations can also provide an
opportunity to discuss controversial topics
with external stakeholders that the com-
pany may not be comfortable addressing
one-on-one.
• Resource sharing. The processes outlined
in this guide all require resource invest-
ment, and particularly for smaller com-
panies or companies with recent commit-
ments, the time and money necessary to
implement a strong supply chain sustain-
ability programme can pose significant
barriers. Industry collaboration can help
companies pool their resources and share
the expenses of establishing standards, en-
gaging with suppliers and engaging with
external stakeholders.
Risks
There are also some risks to industry collabo-
ration to consider:
• Internal commitment. Industry collabo-
ration can be challenging for some com-
panies and could threaten the company’s
ability to get internal commitment to
supply chain sustainability, particularly if
potential partners in industry collabora-
tion are seen as competitors or at marked-
ly different stages of supply chain sustain-
ability. To ensure buy-in, the company
should get a clear understanding of which
companies it will be partnering with and
what their expectations are.
• Resource draining. While industry col-
laborations have the potential to create
cost and time efficiencies for participants,
they also require investment and may
not always deliver results. For example,
initiating shared action with partners
and agreeing to common expectations
and engagement processes can be quite
time intensive, and these efforts may take
significant amounts of time to mature and
create substantial impact.
• Unwillingness to change course. For
collaborative efforts that are more estab-
lished, there is a possibility that internal
colleagues or external partners will be
unwilling to change approaches to get
alignment.
• Antitrust. Part of the activities of industry
collaborations require representatives of
relevant companies in the same sector to
hold meetings on various issues of com-
mon interest. Such gatherings may lead to
inadvertent violations of antitrust laws if
sensitive topics, such as prices and com-
mercial strategies, become part of the
discussion. Reading an antitrust statement
that includes prohibited subjects of discus-
sion at the beginning of each meeting can
help minimize risks of antitrust liability.
 61

Partial List of Industry Collaborations 13

AIM-Progress
AIM-PROGRESS is a forum of consumer goods companies assembled to enable and promote responsible sourcing practices
and sustainable production systems. It is a global initiative supported and sponsored by Association des Industries de
Marque (AIM) in Europe and the Grocery Manufacturers Association (GMA) in North America. Its key objectives include
development of a forum to exchange views regarding responsible sourcing practices and of common evaluation methods to
decrease duplicative auditing.

Pharmaceutical Supply Chain Initiative

The Pharmaceutical Supply Chain Initiative (PSCI) is a group of major pharmaceutical companies who share a vision of
better social, economic and environmental outcomes for all those involved in the pharmaceutical supply chain. The PSCI
created the Pharmaceutical Industry Principles for Responsible Supply Chain Management. These Principles address five
areas of responsible business practices: ethics, labor, health and safety, environment and management systems.

Business Social Compliance Initiative (BSCI)

The BSCI is a platform for retail, brand, importing and trading companies dedicated to the improvement of working condi-
tions in their supply chain worldwide. The organization has created a code of conduct and implements the BSCI Code
through a combination of external monitoring and collaborative capacity building activities.

Railsponsible
Railsponsible is an industry initiative focused on sustainable procurement, with the aim to continuously improve sustainability
practices throughout the railway industry supply chain. The initiative is open to all railway operators and companies across
the railway industry value chain, along with key industry associations, that share its vision, mission and commitments.

Electronics Industry Citizenship Coalition (EICC)

The EICC promotes an industry code of conduct and shared implementation resources for global electronics supply
chains to improve working and environmental conditions. The EICC conducts joint audits, provides tools to audit compli-
ance with the code, offers resources for training for procurement and suppliers, and helps companies report progress.
EICC membership is available to electronic manufacturers, software firms, ICT firms and manufacturing service provid-
ers, including contracted firms that design, manufacture or provide electronic goods, and as such covers the vast majority
of the electronics supply chain.

Ethical Trading Initiative

ETI is an alliance of companies, trade union organizations and NGOs that are committed to working together to identify and
promote good practice in labour code implementation, including monitoring and verifying compliance with code provisions.

Global Social Compliance Programme (GSCP)

The GSCP is a business-driven programme for companies whose vision is to harmonize existing efforts in order to deliver a
shared, global and sustainable approach for the continuous improvement of working and environmental conditions across
categories and sectors in the global supply chain. The GSCP offers a global platform to promote knowledge exchange and
best practices in order to build comparability and transparency between existing systems.

Fair Labor Association

FLA is a multi-stakeholder initiative made up of companies, universities and civil society organizations dedicated to
improving conditions for workers around the world. Participating brands and suppliers (including apparel, footwear, elec-
tronics and agriculture companies) commit to the FLA Workplace Code of Conduct, and the FLA has created a process for
workplace assessment, remediation, verification and investigation of third-party complaints to ensure that companies are
meeting the code’s standards.

ICTI-Care
ICTI CARE is the toy industry’s ethical manufacturing programme aimed at ensuring safe and humane workplace envi-
ronments for toy factory workers worldwide. To achieve these goals, the group provides education, training and a unified
monitoring programme for toy factories.

Social Accountability International (SAI)

SAI is a multistakeholder, multinational, multi-industry organization of business, labour and NGOs whose mission it to
advance the human rights of workers around the world. It carries this out through training, capacity building and the
SA8000 workplace standard, which is based on ILO and UN conventions.

13
For information on industry collaborations, partnerships and initiatives, visit the UN Global Compact's portal Sustainable Supply Chains: Resources and
Prcatices at https://www.unglobalcompact.org/docs/about_the_gc/Architecture.pdf.
62 Supply Chain Sustainability
The Importance
of Partnerships
to Implement the
Post-2015 Devel-
opment Agenda14
Partnerships can help
optimize and scale up
sustainability efforts
in the supply chain as
well as contribute to
corporate participation
in the broader multi-
stakeholder efforts
to achieve UN goals.
This collaboration
requires engagement
and co-investment
by a broader group
of business partners
and key stakeholders
to further strengthen
the various global
and local initiatives
and platforms that
have been developed.
Through partnerships
and the pooling and
sharing of resources,
these opportunities
can be fully realized
for the benefit of all.
There is an increasing
number of platforms
and initiatives focused
on sustainability, or on
a particular sustain-
ability challenge,
that companies can
join, including busi-
ness sector initiatives,
Global Compact Local
Networks and UN-
led multistakeholder
partnerships such as
Sustainable Energy for
All or Every Woman
and Every Child.
For more information, see Architects of a Better World: Building the Post-2015 Business Engagement Architecture (2013), available at https://www.
14
unglobalcompact.org/resources/441.
De Beers, a diamond mining company with
headquarters in Luxembourg and a presence
in locations including London and Johannes-
burg, works with other organizations in the
industry to address a range of historical chal-
lenges including conflict diamonds, a lack
of commercial transparency and improving
working conditions in factories in major cut-
ting and polishing centres. Although the Kim-
berley Process Certification Scheme and the
World Diamond Council System of Warranties
were launched in 2003 to address the issue
of conflict diamonds, no single standard ex-
isted to verify full ethical practices through-
out the diamond pipeline addressing social,
employment, business, health and safety, and
environmental issues. De Beers saw an op-
portunity to establish a benchmark for best
practice not only within the diamond mining
sector, but also through the cutting, polish-
ing and jewellery manufacturing pipeline. To
this end, De Beers launched the Best Practice
Principles (BPP) Assurance Programme in
2005 and made compliance to the standard a
contractual condition of supply to De Beers’
customers and a requirement for all entities
within the De Beers Group.
Multi-Stakeholder Partnerships
In addition to collaborating with industry
peers, many companies are recognizing the
value of working with a broader range of
stakeholders. Chapter 2 described a range of
groups that could provide input on the com-
pany’s supply chain sustainability strategy,
including national and local governments,
workers’ and employers’ organizations, non-
governmental organizations, advocacy and
activist organizations, academic and issue
experts, community groups and stakeholder
groups, such as women, indigenous people,
minorities, elderly and persons with disabili-
ties. Many of these groups are knowledgeable
about sustainability issues and can be useful
partners, beyond just sharing perspective
and advice, by working closely to address
supply chain challenges. For example, enter-
ing into multi-stakeholder partnerships with
organizations that promote women’s partici-
pation in the supply chain can promote their
inclusion in the company’s supply chain.
In recent years, more and more stakehold-
er groups have demonstrated willingness to
partner with companies. They can assist with
understanding the context for sustainability
challenges, help with designing effective
responses and act as local implementing
partners. They can also bring a wealth of
information on best practices and learning
from other companies who have faced simi-
lar issues in the supply chain. In addition,
they can bring resources and legitimacy to
supply chain sustainability efforts.
Business can also work with govern-
ments, including local authorities, to
support national and local efforts and
improve capacity to address the root causes
for sustainability challenges that business
experiences in supply chains.
Many companies have created cost efficien-
cies by undertaking efforts to reduce ac-
cidents and illnesses and improve the overall
health of workers in their supply chains. Levi
Strauss & Co., a U.S.-based apparel com-
pany, has implemented a number of worker
rights and well-being programmes, such as
health education training programmes at
its suppliers’ factories in partnership with
civil society organizations. These programs
are designed to improve worker well-being
and ensure worker rights are respected and
have also helped suppliers achieve savings
through increased productivity and reduced
absenteeism. Additionally, Levi Strauss & Co.
includes workplace standards and worker
rights as an integral part of all bilateral, re-
gional or multilateral trade negotiations. Levi
Strauss & Co. publicly advocates for linkage
of trade and labor, incorporating key work-
place standards and worker rights provi-
sions within the context of trade agreements
through congressional testimony, meetings
with senior government officials, trade nego-
tiations and multi-stakeholder initiatives.
 63

• N Brown Group, a UK-based retail com-

Accord on Fire and Building Safety - The
pany, was the first medium-sized company to
Accord on Fire and Building Safety in Ban-
sign the Accord on Fire and Building Safety
gladesh (the Accord) is a five year indepen-
in Bangladesh as one of the founding par-
dent, legally binding agreement between
ticipants. The company has been part of the
global brands and retailers, NGOs and trade
Accord’s Steering Committee, participated in
unions. With more than 200 signatories and
two delegations to Bangladesh and repre-
over 1,500 factories covered by the agree-
sented the Accord at a number of events. The
ment, the Accord is designed to maintain a
company will continue to invest time in the
minimum safety standard in the Bangladeshi
partnership as it is a concrete example of how
garment industry. The aim of the Accord
to work together to improve worker safety in
is the implementation of a programme for
the garment industry in Bangladesh
reasonable health and safety measures to
ensure a safe and sustainable Bangladeshi
• Inditex, a Spanish multinational retail
Ready-Made Garment industry over a period
company, is a signatory of the Accord on Fire
of five years. The Accord was signed on 15
and Building Safety in Bangladesh as part of
May 2013, in the aftermath of the Rana Plaza
its commitment to open dialogue and ongo-
Building collapse that led to the death of
ing cooperation. The company was one of the
more than 1,100 people and injured more
first signatories and participated actively in
than 2,000. It is governed by a Steering
drafting the Accord. Inditex also served in
Committee equally composed by signatory
the Accord’s Steering Committee together
companies and trade unions with a neutral
with other business representatives, NGOs
Chair provided by the International Labour
and unions. Inditex considers the Accord a
Organisation (ILO). The Accord is implement-
pioneering agreement to bring about sustain-
ed through six key components, including an
able improvement in working conditions in
independent inspection programme support-
Bangladesh’s textile sector.
ed by companies in which workers and trade
unions are involved. To date, all 1,500-plus
factories covered under the Accord have been
inspected for fire, electrical and structural
safety. In some cases, the Accord has acted
immediately where inspections found safety
problems which posed imminent danger to
workers’ lives. In all factories, the signato-
ries and factories are developing and imple-
menting Corrective Action Plans to remediate
all identified safety hazards. Other integral
components of the Accord are a comprehen-
sive worker participation programme with
workers and factory owners and a safety and
health complaints mechanism.
64 Supply Chain Sustainability

“At Telenor, we aim to make corporate

responsibility an integral part of the way
we do business – and we realize that our
impact on society also extends to our
suppliers and business partners. Managing
our supply chain towards responsible
business conduct is therefore something
we do not compromise within Telenor.
We shall not only demonstrate excellent
working conditions and environmental
management within all our own
companies, we also require that all our
suppliers meet the standards set down
in our Supplier Conduct Principles.
We will work towards our goals by
driving continuous improvement through
systematic engagement with our suppliers.”
– Jon Fredrik Baksaas, President & CEO of Telenor
 65

Global Compact Local Networks

More than 80 Global Compact Local Networks provide on-the-ground support for Global Compact signatories
around the world. Networks undertake a variety of activities to do so, including identifying local priorities relating to
responsible business practices, raising awareness about local sustainability challenges and opportunities, organiz-
ing learning and dialogue events, mobilizing collective action efforts and facilitating partnerships between compa-
nies and local stakeholders to contribute to broader sustainable development objectives. Networks also provide
assistance to companies in preparing their annual Communication on Progress reports.
To advance supply chain sustainability, companies can work through Local Networks in geographies where
they have significant numbers of suppliers. Companies can, for instance, encourage suppliers to join the UN
Global Compact and participate actively in Local Network events to improve their own sustainability performance.
Companies can also support Local Networks by sharing knowledge and expertise, and providing financial support
to Local Network activities.

Many Local Networks have engaged in activities to advance supply chain sustainability, including:

The Global Compact Network Spain has organized several trainings, conferences and roundtables around sup-
ply chain sustainability topics. Since 2011, the Network has developed several partnership agreements with large
companies aimed at reinforcing their commitment to sustainability and the UN Global Compact Ten Principles
throughout their supply chain. This collaboration engaged suppliers of these companies in a number of activities,
including: development of in-person and online training sessions, access to a reporting platform to assist in draft-
ing and submitting their annual Communication on Progrss (COP) to the UN Global Compact and access to con-
sultations with a CSR specialist to address specific issues. Several companies have partnered with the Network
on this project and encouraged more than 1,000 suppliers to become participants of the UN Global Compact. In
2009, it also published a guide on implementing the Ten Principles in the company’s supply chain.
http://pactomundial.org/wp-content/uploads/2015/03/Cadena_suministro-alternativa-de-gesti%C3%B3n.pdf

The Global Compact Network Japan has convened a Working Group on Supply Chain Management in which
more than a dozen Japanese companies from different sectors participate. In 2013, the members of the Working
Group published a Vision of Desirable CSR Activity in the Supply Chain – a Proposal from the Supply Chain Working
Group on how companies can engage more effectively with suppliers and realize the win-win-win potential of sus-
tainable supply chain management – for buyers, suppliers and societies.
http://www.ungcjn.org/activities/topics/detail.php?id=117

The Global Compact Network Italy and its Sustainable Supply Chain Working Group developed a self-assess-
ment questionnaire for suppliers based on the UN Global Compact Ten Principles as well as international agree-
ments, conventions and standards. The questionnaire was uploaded to an online platform: the TenP – Sustain-
able Supply Chain Self-Assessment Platform, a tool to support companies in self-evaluating their sustainability
strategies and practices, tracking their progresses, benchmarking their sustainability performances against peers
and sharing the self-assessment results with the TenP Platform Partners being able to monitor who has access to
their data. The tool is publicly available on the Italian Network’s website.
https://www.tenp.globalcompactnetwork.org/PortaleGCNI/

The Global Compact Network Germany has supported the development of the Sustainability Compass, a one
stop shop for companies who wish to align their procurement practices with international sustainability standards.
The Sustainability Compass, which is available in German, offers guidance to SMEs on how to identify risks in their
supply chain and address them. It also includes best practices by other companies as well as a list of internationally
recognized tools and standards.
http://kmu.kompass-nachhaltigkeit.de/
66 Supply Chain Sustainability

8. Establishing Goals & Tracking and
Communicating Performance
While it is important to establish clear roles
for key functions throughout the company,
it is equally important to set comprehensive
performance goals. Explicit objectives for
supply chain sustainability will provide indi-
viduals with direction in their tasks and will
also help the company evaluate the impact
and success of the company’s programme in
progressively addressing sustainability issues
in the supply chain.
The Process of Goal Setting
Goal setting should be a collaborative process
that involves leadership from each of the
functions that will have responsibility for
meeting established objectives of effectively
preventing and addressing adverse social and
environmental impacts. It is also important
to align sustainable supply chain objectives
with business needs, whenever that is pos-
sible. Review the company’s business strategy
and objectives and identify places where the
supply chain objectives that the company
has defined support the company’s overall
business objectives. The company’s executive
leadership should endorse the goals.
Performance against goals will need to be
tracked year after year as part of measureable
sustainable supply chain objectives. While
this seems obvious, it requires companies to
go through the often challenging process of
defining what the desired and realistic goals
are and how and when that goal should be
met. Defining and tracking progress towards
goals demonstrates the value of the work that
is done to meet the goal.
Although goals are usually designed at a
high-level for the entire business, these objec-
tives need to be translated into actionable
targets for managers across all functions in an
integrated and coherent manner. Only in this
way can they be rolled out throughout the
company. For example, a goal on the number
of suppliers that attend sustainability trainings
can be translated into a target for individual
supply chain management professionals
within each sourcing group that manages
supplier relationships. Similarly, more micro-
level targets that can be rolled up to provide a
picture of overall performance against goals.
67
Goals for Impact
Along with setting goals designed to ad-
dress social, environmental and governance
issues in the supply chain, companies have
the opportunity to have positive impacts on
people, the environment and governance
through their supply chain. Goals for impact
should be adapted to the risks in the supply
chain and be developed to help the company
address such risks. Furthermore, based on the
company’s vision for supply chain sustain-
ability, objectives for business impact should
be fairly straightforward. These can include
meeting customer and other stakeholder
expectations, reducing costs and expanding
into new markets.
When setting goals for impact, compa-
nies should pay particular attention to how
specific groups may face different risks or
impacts than others, for example due to
marginalization in society. Companies should
set goals that can track and measure how the
supply chain programme addresses impacts
on specific stakeholders groups, including
women, children, persons with disabilities,
elderly, minorities and indigenous people.
The goal-setting process can also be an op-
portunity to identify ways to support human
rights and inclusiveness; where applicable,
companies should also set targets for the
inclusion of the relevant stakeholders groups
in the supply chain.
68 Supply Chain Sustainability
Restaurantes Toks operates 130 res-
taurants in 84 cities throughout Mexico,
providing more than 10,000 jobs and serving
more than 25 million consumers each year.
In an effort to integrate poor rural commu-
nities into its supply chain, the company has
initiated a project working with a strawberry
marmalade production group formed and
managed by 13 women in Santa Rosa de
Lima in Central Mexico. In 2005, the per
capita income in Santa Rosa de Lima was
less than $US 60 per month, and the town’s
population was disproportionately female
due to high rates of illegal immigration by
men to the United States.
Restaurantes Toks has incorporated straw-
berry marmalade supplied by the Santa Rosa
de Lima Enterprise into its menus, success-
fully integrating the community into the
company’s supply chain. Before beginning
to sell to Restaurantes Toks, the Santa Rosa
de Lima Enterprise provided an income of
$US 2,500 to all the families in the com-
munity. The Santa Rosa de Lima Enterprise
now sells more than $US 500,000 worth of
strawberry marmalade to Restaurantes Toks
each year, radically increasing the commu-
nity’s per capita income. Furthermore, Res-
taurantes Toks is working with the company
to increase production capacities to enable it
to enter additional markets.
Due to the demonstrable impact of this
model on protecting and promoting human
and economic rights, Restaurantes Toks
has duplicated the approach with 40 other
community food and handicraft production
groups.
Goals for Supplier Performance
As discussed in Chapter 5, there are many
mechanisms the company can use to track
performance of individual suppliers and
encourage supplier ownership. However, it is
important that companies set objectives for
overall supplier performance, which can be
revised at later dates with supplier input.
Goals for suppliers should be formulated
with inputs from management across func-
tions, especially supply chain management, to
ensure broad commitment and realistic goals.
They should establish objectives for overall
supplier performance against the expectations
set by the company and adapted to address
specific risks that may be relevant to particu-
lar suppliers or parts of the supply chain.
Goals should enable the company to track
how successful the supplier is at address-
ing relevant risks over time. For example,
companies often set goals for the number
of suppliers completing corrective action
plans after they’ve been audited (see Chap-
ter 5). Companies should also set goals for
performance in specific areas such as human
rights, labour, environment, ethics and sup-
plier management systems of suppliers— the
internal policies, practices and organizational
structures that enable suppliers to proactively
manage for sustainability.
Goals for Internal Performance
As described in the preceding chapter, one of
the most persistent obstacles that companies
face in meeting their impact objectives and
supporting suppliers to meet supplier perfor-
mance objectives is the unresolved tension
between supply chain management profes-
sionals’ commercial objectives and their desire
to ensure fair working conditions and envi-
ronmentally friendly and ethical practices. To
support increased attention from supply chain
management professionals on sustainability
issues, companies should consult with leaders
from supply management and other functions
to set objectives for internal implementation of
supply chain sustainability.
Goals for internal performance should pro-
vide guidance on expectations for how sustain-
ability will be integrated into supply manage-
ment decisions. For example, some companies
establish goals related to placing a specific
percentage of their spend (or volume) with the
highest performing suppliers, while others
emphasize setting goals that make sustain-
ability a key factor alongside other commercial
and technical criteria, to be used in making
decisions about supply. Another goal would be
the percentage of supply chain management
professionals receiving training in sustainabil-
ity issues.

One of the key objectives of Montepaschi
Group is to embed the principles of its
Sustainable Supply Chain programme within
its standard sourcing processes. For some
years, the Bank has practiced a policy of
monitoring and continuous improvement of
the CSR profiles of firms included in its sup-
ply chain. It implements product and service
procurement strategies under competitive
economic conditions, ensuring that through-
out the related life cycles environmental
impacts are minimised and all potential vio-
lations of human rights and workers’ rights
as well as rules to prevent corruption and
conflicts of interest are avoided. The objec-
tives that the Montepaschi Group pursues by
implementing this policy are: 1) identifying
opportunities to minimize environmental and
social impacts in the supply chain; 2) contrib-
uting to reducing operational and compli-
ance risk and consequences impacts to our
reputation; 3) improving the management of
costs associated with procurement process-
es and logistics aspects; 4) promoting the
growth of suppliers, stimulating innovation in
sustainable products and processes.
Measurement
Processes and Practices
In order to evaluate performance against
its own supply chain sustainability goals, a
company needs to collect and track perfor-
mance data over time. Much of this data, and
the processes and practices around it, will
also be critical to implementation of aspects
of the company’s supply chain sustainability
programme already covered in this guide.
What data to collect
Companies will need to collect data on both
supplier and supply chain management
professionals’ performance. Metrics need
to be designed to allow for straightforward
evaluation of the company’s progress on its
goals. Much of this data will likely overlap
with the data that supply chain management
professionals will collect as part of evaluat-
ing suppliers and that other functions, such
as Environment, Health and Safety may
also capture. The company should begin
by analyzing the breadth and quality of all
existing metrics and data. As a next step, the
company will probably need to spend some
time standardizing metrics so that if different
parts of the company are collecting informa-
69
supplier databases
Fair Factories Clearinghouse (FFC): launched by US footwear and
apparel firm Reebok International Ltd., the National Retail Federation,
Retail Council of Canada and World Monitors to create an online global
database to share factory audit and compliance data. The FFC, a non-
profit organization, offers members an online audit management system
and sharing platform to enable cost effective, well-informed ethical
business transactions and improved workplaces around the globe.
Suppliers Ethical Data Exchange (Sedex): Sedex (sedexglobal.
com) works with buyers and suppliers around the world to deliver
improvements in responsible and ethical business practices in global
supply chains. Sedex’s mission is to drive collaboration, increase trans-
parency and build the capacity that’s needed to raise standards across
all tiers of the supply chain. Sedex has over 38,000 members worldwide
and offers the world’s largest collaborative platform for managing and
sharing ethical supply chain data, along with leading-edge services
which companies use to understand, monitor and manage supply chains
risks and improve standards.
Ecovadis: EcoVadis operates the Supplier Sustainability Ratings
platform, an online system allowing companies to access CSR ratings
of suppliers covering 21 indicators and 150 spend categories. Over 120
multi-national companies are using EcoVadis to assess and improve
environmental, social and ethical practices of thousands of suppliers
across 110 countries.
tion on the same topics it is captured in a
unified way. Where data is collected about
addressing specific social or environmental
risks, or risks to a specific stakeholder group,
it is good practice to involve the relevant
impacted group in defining what data to col-
lect and how to collect it. Whenever possible,
companies should also include collection of
sex-disaggregated data for analysis, mea-
surement and measurement of progress on
inclusive sourcing.
How to collect data
Data collection can be challenging given the
vast number of suppliers that the company
may be evaluating and the number of sources
that data can originate from. In addition,
there are many examples of suppliers that
keep double books, coach workers to respond
falsely to worker interviews during audits,
bribe inspectors and find other ways to mask
the real situation in their company. This
makes methods of ensuring the integrity of
data critically important to decision making.
70 Supply Chain Sustainability
In addition, transparency of supplier infor-
mation across functional and organizational
boundaries is often limited, and companies
often struggle with a lack of effective commu-
nication and understanding between compa-
nies and their suppliers on the information
they need to exchange. Many companies are
exploring information technology platforms
that will enable comprehensive data col-
lection and management. Cross-functional
business managers can be helpful in aligning
internal systems and processes. Collabora-
tion with suppliers may also be useful since
they will be inputting data and may be more
inclined to engage with the company’s pro-
gramme if they feel that they’ve had a hand
in shaping it. As far as possible, companies
should strive to consult with impacted groups
to collect data, so as to understand whether
interventions are successful in addressing risk
from their perspectives.
There are a number of data sharing plat-
forms that can help collect and manage sup-
plier information about sustainability perfor-
mance. These include Sedex, EcoVadis, e-Tasc
and Fair Factories Clearinghouse. There are
also many information technology companies
that provide this type of resource as well.
How to use data
Finally, the company needs to plan for how
data will be used. Companies must be ready
to share at least some of their data externally,
including in the form of public reporting,
which will be analyzed more in-depth in the
next section. As data is collected over time,
the company’s executive leadership should
receive regular updates on progress. Supply
chain management professionals in particu-
lar will use much of the data on supplier
performance in decision making as described
in Chapter 3. All communications should be
of a form and frequency that reflects the com-
pany’s social and environmental impacts and
are accessible to stakeholders. They should
also include necessary details for stakehold-
ers to evaluate how the company addresses
those impacts while being framed in a way
that would not put affected stakeholders or
personnel at risk or expose commercially
sensitive information.
Johnson Controls Inc., an American instru-
mentation company, has created a Supplier
Sustainability Rating to quantitatively measure
a supplier’s environmental impact. The ques-
tionnaire contains questions related to human
rights, working conditions, employee safety,
energy management, if the supplier is publicly
reporting data such as its greenhouse gas emis-
sions and, specifically, if the supplier is report-
ing to the Carbon Disclosure Project. The ques-
tionnaire is completely electronic and resides
on Johnson Controls’ public website so that all
suppliers have easy access to the questionnaire.
Once suppliers complete the questionnaire, the
respective Procurement managers are provided
the results. The managers then determine the
ranking of the supplier and, as appropriate,
work with the supplier to ensure they are fully
compliant with the expectations defined by the
company’s Ethics Policy. Johnson Controls has
policies and procedures in place for removing
unethical suppliers from its approved vendor
lists if they don’t or won’t comply.
Timberland, an American footwear company,
has created a “Green Index” environmental rat-
ing system that measures and communicates
critical aspects of environmental performance
in a simple format to inform product design
and development. The Green Index rating
system drives alignment of product design
and development with Timberland’s corporate
environmental strategy. The company aims to
reduce impacts in three broad areas: climate,
chemical use and resource consumption. By
providing clear environmental measures in
these areas, product creation teams can choose
processes that require less harmful chemicals
and increase the use of less carbon-intensive
materials, as well as recycled, organic and
renewable materials.
 71

Communicating Progress While traditionally sustainability and EXTERNAL

And Reporting financial reporting have been kept separate, ASSESSMENT OF
Public reporting can be a tool to stimulate it should be noted that integrated reporting SUSTAINABILITY
and enhance sustainability and transparency is emerging as a way to combine information REPORTS
in the supply chain. It also demonstrates the on the company’s environmental, social and
management of environmental and social ethical performance with financial informa- When all data has been
impacts and the assurance of good gover- tion. The International Integrated Reporting collected, it is important
nance of the supply chain to both internal Framework establishes Guiding Principles and to ensure its credibility
and external stakeholders. Content Elements that govern the overall con- before disclosing it to
Companies should be prepared to com- tent of an integrated report and explain the the public. External
municate publicly on how they address risks fundamental concepts that underpin them. assessment, a review
where concerns are raised by or on behalf of In all cases, communication should be of by a credible third party
affected stakeholders. Where a company may a form and frequency that is commensurate of the information in the
have a high-risk supply chain, for example if it with risks and impacts and be accessible sustainability report,
is dependent on sourcing from conflict-affected to the intended audience. As mentioned can strengthen the value
areas, companies should report formally on above, communication should be sufficient of the reported data as
how supply chain risks are addressed. for stakeholders to evaluate the adequacy of well as drive improve-
UN Global Compact signatories are a company’s response to address risks, but ments in corporate sus-
furthermore required to publicly commu- should not pose risks to affected stakehold- tainability performance.
nicate with stakeholders on an annual basis ers, personnel or legitimate requirements of There are two ways to
on their progress in implementing the ten commercial confidentiality. conduct an external
principles. This annual communication, assessment: assess-
or Communication on Progress (COP), is an ment by stakeholders,
important demonstration of the company’s through a stakeholder
commitment to the UN Global Compact panel or peer review,
and its principles. Depending on the level and third-party assur-
of disclosure, each COP is categorized as GC ance providers, spe-
Learner, GC Active or GC Advanced. Informa- cialized professionals
tion on a number of specific areas beyond such as sustainability
those minimum requirements will account service firms, engineer-
for a GC Advanced level. ing firms, accountants
Beyond the COP, sustainability reporting and consulting firms.
is the most common way for companies to When possible, the use
communicate progress with stakeholders. of third-party assurance
Sustainability Reporting is the practice of providers is recommend-
measuring and disclosing, and being ac- ed as the best suited to
countable to internal and external stakehold- ensure reliability and
ers for organizational performance towards accuracy of the informa-
the goal of sustainable development. Sustain- tion reported.
ability reporting is a logical last step after Companies reporting at
having implemented a supply chain sustain- the GC Advanced level
ability approach and, as the process requires not only disclose infor-
companies to consider their progress against mation against advanced
goals and to be transparent to stakeholders, criteria and best prac-
will help to improve it continuously. tices, but also use some
Many companies report using the GRI type of external assess-
framework, one of the world’s most widely ment for their reports.
used standards for sustainability reporting.
GRI is one of the recommended reporting
languages for UN Global Compact partici-
pants to communicate with stakeholders
on their progress in implementing the UN
Global Compact Ten Principles. The last itera-
tion of the GRI framework, the G4, includes
Standard Disclosures related to supply chain.
72 Supply Chain Sustainability

Acknowledgements
A wide range of stakeholders were consulted throughout the revision
process of this guide including UN Global Compact staff, UN Global
Compact Local Network focal points, UN Agencies, issues experts
and civil society and members of BSR staff. We wish to thank the
following individuals for taking the time to review and comment on
the drafts of this revised version of the guide:

Ms. Lene Wendland, Head of Business and Human Rights and Ms.
Ragnhild Handagard, Consultant on Business and Human Rights,
Office of the High Commissioner for Human Rights (OHCHR); Mr.
Michael Rohwer, Project Director, Electronic Industry Citizenship
Coalition (EICC); Ms. Beth Jensen, Director of Corporate
Responsibility and Ms. Nikki Hodgson, Corporate Responsibility
Coordinator; Outdoor Industry Association (OIA); Mr. David
Lawrence, Executive Director, AIM-Progress; Ms. Isabel Garro
Hernandez, General Director and Ms. Cristina Sanchez Garcia,
Project Coordinator, Global Compact Network Spain; Ms. Margherita
Macellari, Programme Manager and Analyst, Global Compact
Network Italy; Mr. Philip Bleckmann, Economy and Human Rights
Advisor, GiZ/Global Compact Network Germany; Mr. Philip Hunter,
Program Director, Verité; Mr. Pierre-Francois Thaler, Executive
Director and Mr. Simon Gargonne, Senior CSR Analyst, EcoVadis.
 73

PHOTO CREDITS:
Page 6 © World Bank/Lianqin Wang
Page 11 © Hard Rain Picture
Library/Mark Edwards
Page 21 © Hard Rain Picture Library/
Andi Wijaya, Unep
Page 27 © World Bank/Ray Witlin
Page 34 © World Bank/Jim Pickerell
Page 35 © istockphoto
Page 49 © UN Photo/Eskinder Debebe
Page 57 © World Bank/Ray Witlin
Page 65 © istockphoto
 The Ten Principles of the
United Nations Global Compact
Human rights

Principle 1 Businesses should support and respect the protection of

internationally proclaimed human rights; and
Principle 2 make sure that they are not complicit in human rights abuses.

Labour

Principle 3 Businesses should uphold the freedom of association and the

effective recognition of the right to collective bargaining;
Principle 4 the elimination of all forms of forced and compulsory labour;
Principle 5 the effective abolition of child labour; and
Principle 6 the elimination of discrimination in respect of employment
and occupation.

Environment

Principle 7 Businesses should support a precautionary approach to

environmental challenges;
Principle 8 undertake initiatives to promote greater environmental
responsibility; and
Principle 9 encourage the development and diffusion of
environmentally friendly technologies.

Anti-corruption

Principle 10 Businesses should work against corruption in all its forms,

including extortion and bribery.

Published by the UN Global Compact

Contact: info@unglobalcompact.org
June 2015